Question

What are the three categories used within the statement of cash flows? WHY are these categories important for understanding an organization's cash situation?

Answer 1

Cash Flow statement is prepared to reconcile the beginning cash balance to ending cash balance by calculating net cash provided or used during the period.

CasH flow statement is divided in to three activities :

Cash Flow from operating activity : Under this acivity ,net cash earned (spent) during the period from normal operstions of business is calculated by using the direct or indirect method .

such as cash collection from sales ,cash purchase ,cash operating expense etc.

Cash flow from Investing activity :Under this activity ,Net cash provided or used by organisation In long term assets of the organisation . such as purchase of investment ,sale of equipment etc

cash flow from financing activity .Under this activity ,net cash provided or used to finance the long term financing needs of business

such as issue of stock ,purchase of treasury stock ,dividend paid etc.

b)These categories are needed to exactly determine how much cash is earned (spent )from normal operations or by making investment in long term asset or from financing activities .