5. Describe the three main sections of a statement of cash flow? (6 marks)

5. Describe the three main sections of a statement of cash flow?

Expert Solution

The three main sections of a statement of cash flow are

1.Cash flows from Operating activities

2.Cash flow from Investing activities

3.Cash flow from Finacing activities

1.Cash flows from Operating activities

The amount of cash flows arising from operating activities is a key indicator of the extent to which the operations of the enterprise have generated suffcient cash flows to maintain the operating capability of the enterprise,pay dividends,repay loans and make new investments without recourse to external finacing.Cash flows from operating activities are primarily derived from the priciple revenue producing activities of the enterprise.Therefore,they generally result from transactions and other events that enter into determination of net profit and loss.

2.Cash flow from Investing activities

The seperate disclosure of cash flows arising from investing activities is important because the cash flows represent the extent to which expenditures have been made for resouces intended to generate future income and cash flows.Investing activities include purchase and sale of fixed assets,investmernt in securities(shares,debetures)etc.Cash flow from investing activities discloses expenditures incurred for resources intended to generate future income and cash flows.

3. Cash flow from Finacing activities

Financing activities are those activities which result in changes in size and composition of 'owners' capital(or 'shareholders' funds) and short term and long term borrowings.These include raisinf funds from owners,borrowing from creditors and repayment/redemption

jeff jeffy answered 1 year ago

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