Question

IN SIMPLE SHORT PARAGRAPH SO I CAN GET IT.. EXAMPLES WOULD BE GREAT

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What are the three types of business activities and how are they reported in the Statement of Cash Flows?

Answer 1

There are 3 types of Business activities while it comes to Cash Flow statements :
1. Operating activities
2. Investing activities
3. Financing activities.

1. Operating activities - These are the activities which are normal operating activities i.e. to run core business of the organization like cash flow from sale, receipt from accounts receivable, Inventory sale purchases, Changes in other current assets and liabilities etc. These are reported first in the CFS. In direct method of CFS, these are reported directly which means that all the cash flow from sale purchases salaires etc. will be calculated. In indirect method, these are adjusted in Net profit of the current year. E.g. In the Net profit, interest expenses are also included which is not a operating expenses therefore will be removed from here and will be shown under financing activity.

2. Investing acitivities - the second part - All the investment accounts and related activities come here in this section. Any purchase or sale of fixed assets will also qualify as investment activity. If you are running a manufacturing business, buying a plant and machinery will be qualified as investment and will come under investing activities.

3. Financing activities - Financing activities are those the company has done to fulfill its financial needs. e.g. Taking a loan from bank is a financing acitivity. Further, interest paid on the loans will form part of the financing activiy only. COmpanies issue bonds or shares to obtain finance and pay dividend and interest on shares and bonds thus will come under financing activities only.

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