What are the three categories of cash flows on the cash flow statement?

What are the three categories of cash flows on the cash flow statement?

Expert Solution

The three categories of cash flows on the cash flow statement are as follows :

Cah flow from operating activities :

It includes the cash activities related to net income. So revenue or cash generated from sale of Goods and cash paid for goods to suppliers are operating activities because it involves expense and revenue that are included in the net income.

The following are examples of cash flow from operating activity:

Cash receipts from customers
Cash paid to suppliers
Cash paid to employees

Cah flow from investing activities :

It icludes the purchase and sale of long term assets i.e the assets which generally have a useful life of more than 1 year. Long term investments , property plant and equipment and the principal amount of loan made to other entities fall under this category.

The following are examples of cash flow from investing activity:

Purchase of property, plant and equipment
Proceeds from sale of equipment

Cah flow from financing activities :

It includes cash activities related to non current liabilities and owner's equity

The following are examples of cash flow from financing activity:

Proceeds from issuance of common stock
Proceeds from issuance of long term debt
Principal payments under capital leases
Dividend paid

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