From the course: Financial Accounting Part 2
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What do the cash flows tell you?
From the course: Financial Accounting Part 2
What do the cash flows tell you?
- In the statement of cash flows, cash receipts and payments are classified into three main categories, operating activities investing activities, and financing activities. Operating activities include those transactions and events that enter into the calculation of net income. Cash receipts from the sale of goods or services are the major cash inflows for most businesses. Other cash inflows include cash receipts for interest revenue, dividend revenue, and similar items. Major outflows of cash are for the purchase of inventory and for the payment of wages, taxes, interest, utilities, rent and similar expenses. As I'll explain later, the amount of cash provided by or used in operating activities is a key figure and should be highlighted on the statement of cash flows. Transactions and events involving the purchase and sale of property, buildings and equipment are classified as investing activities. These activities don't occur…
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