Question

What are the cash flows from operating activites

Answer 1

Answer:- Cash Flow from Operating Activities indicates the amount of money a company brings in from its ongoing, regular business activities, such as manufacturing and selling goods or providing a service to customers. It is the first section depicted on company's cash flow statement.

The operating activities on the cash flow statement include any sources and uses of cash from business activities. In other words, it reflects how much cash is generated from a company's products or services.

NOTE:- Generally, changes made in cash, accounts receivable, depreciation, inventory, and accounts payable are reflected in cash from operations.

These operating activities might include:-

• Interest payments
• Income tax payments
• Receipts from sales of goods and services.
• Rent payments
• payments made to suppliers of goods and services used in production.
• Salary and wage payments to employees.
• Any other type of Operating Expenses.

There are two Methods of preparing the cash flow from Operating Activities:-

1.Direct Method

2.Indirect Method

1.Cash flow from operating Activity under Direct Method:- While preparing the cash flow statement as per Direct Method, Actual Cash Receipts from Operating Revenues and Actual Cash Payments for Operating Activities are arranged and presented in the cash flow statement.The difference between cash receipts and cash payments is the net cash flow from operating activities under the direct method.

While preparing the cash flow statement as per Direct Method, items like Depreciation, Amortisation of Intangible Assets, Preliminary Expenses, Debenture Discount etc are ignored from cash flow statement. since the D irect Method includes only cash transactions and non cash transactions are omitted.

Format for computation of Cash Flows from Operating Activities as per Direct Method :-

Particulars	Amount($)
Cash Receipts from Customers	XXX
Cash Paid to Suppliers and employees	(XXX)
Cash generated from Operations	XXX
Income Tax Paid	(XXX)
Cash Flow before Extra- ordinary Items	XXX
Extra- ordinary Items	XXX
Net Cash from Operating Activities (Direct Method)	XXX

2.Cash flow from operating Activity under Indirect Method:-While preparing the cash flow statement as per Indirect Method, the Net Profit / Loss for the period is used as base and then adjustments are made for items that affected the Income Statement but did not affect Cash.

While preparing the cash flow statement as per Indirect Method, Non Cash and Non Operating charges in the Income Statement are added back to the Net Profits While Noh-cash & Non Operating Credits are deducted to calculate the Operating Profit before Working Capital Changes. The Indiect Method of preparing of cash flow statement is a partial conversion of accural basis profit to Cash basis profit. Further, necessary adjustments are made for Increase/ Decrease in Current Assets and Current Liabilities to obtain Net Cash Flows from Operating Activities as per the Indirect Method.

Format for computation of Cash Flows from Operating Activities as per Indirect Method :-

Particulars	Amount($)
Net Profit before Tax and Extraordinary items	XXX
ADJUSTMENT FOR
-Depreciation	XXX
-Foreign Exchange	XXX
-Investments	XXX
-Gain or Loss on Fixed Assets	XXX
- Interest Dividend	XXX
Operating Profit before Working Capital Changes	XXX
ADJUSTMENT FOR
- Trade and Other Receivables	XXX
- Inventories	XXX
-Trade Payable	XXX
Cash generated from Operations	XXX
-Interest Paid	(XXX)
-Direct Taxes	(XXX)
Cash before Extra- Ordinary Items	XXX
Deffered Revenue	XXX
Net Cash from Operating Activities (Indirect Method)	XXX