Explain the three main classifications of a statement of cash flows

Explain the three main classifications of a statement of cash flows

Expert Solution

The three categories of cash flows are operating activities, investing activities, and financing activities. Operating activities include cash activities related to net income. Investing activities include cash activities related to noncurrent assets.

Operatingactivities include the production, sales, and delivery of the company’s product as well as collecting payments from its customers. This could include purchasing raw materials, building inventory, advertising, and shipping the product.

Investing activities are purchases or sales of assets (land, building, equipment, marketable securities, etc.), loans made to suppliers or received from customers, and payments related to mergers and acquisitions.

Financing activities include the inflow of cash from investors, such as banks and shareholders and the outflow of cash to shareholders as dividends as the company generates income. Other activities that impact the long-term liabilities and equity of the company are also listed in the financing activities section of the cash flow statement.

ekkarill92 answered 3 months ago

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