Question

Describe the types of activities in each of the three main sections of the Statement of Cash Flows and provide two examples.

a) Operating

b) Investing

c) Financing

Answer 1

Answer: Cash flow statement- It is one of the three most important financial statements of a company. Cash flow statement shows the inflow and outflow of cash for a given period of time. It tells net increase or decrease of cash for an accounting period.

(a): Operating activities- These are the activities happened due to normal operation of business. These are the day to day business activities. It is the first section in the cash flow statement. Operating activities are the day to day activities of a company that includes manufacturing and selling the products.

Examples:

1. Payment to suppliers
2. Paying salaries

(b): Investing activities- Cash flow from investing activities include the company's investments such as purchasing long term or fixed assets that will provide cash flows in future, investing into marketable securities, acquisition of any business. Heavy and one time investments are called capital expenditures that reduce cash but provide benefits in future.

Examples:

1. Purchase of property, plant and equipments
2. Sale of property, plant and equipments.

(c): Financing activities- Cash flow from financing activities include the outflow of cash that is used to finance the operations of business. These activities include the transactions of debt, equity and dividend.

Examples:

1. Receiving cash from issuing stocks
2. Paying cash dividend to shareholders.