Question

Please discuss the different types of cash flows that affect a company's net cash position.  

Answer 1

The cash flows are classified into following three main categories:

(a) Cash flows from Operating Activities

(b) Cash flows from Investing Activities

(c) Cash flows from Financing Activities

Cash flow from operating Activities-

Cash flows from operating activities are primarily derived from the principal revenue producing activities of the entity ie from operations of the business.They are, in general, the result of the transactions and events that enter into the determination of profit or loss.

Examples - Sale and purchase of goods, Payment of employees , Suppliers  Cash receipt from Customers

Cash flow form Investing Activities -

Investing activities represent the extent to which expenditures have been made for resources intended to generate future income and cash flows. Here any expenditure that leads to recognition of an asset that generates future economic benefits to an entity will be investing activity

Examples- Purchase of fixed asset, Investing in subsidiaries and joint ventures.

Cash Flow from Financing Activities -

Cash flows relating to change in the capital of the entity in the way of debt or equity share capital will be cash flow from Financiang activities . They also include interest payments to the long term debt .

Examples - Cash received from issue of shares , Debentures, Buy Back of equity shares etc

The financial statements also comprise of a cash flow statement in which the net cash position is derived by adding the cash flow from all these activities