The Statement of Cash Flow Classifies the Cash Flows into Three

question 148

Essay

The statement of cash flow classifies the cash flows into three categories. Describe each of these categories.

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Definitions:

Operating Activities

Transactions and events that pertain to the primary business operations, impacting the net income and involving cash flows related to operating expenses and revenues.

Indirect Method

A method for preparing cash flow statements where net income is adjusted for changes in balance sheet items to compute cash from operating activities.

Operating Activities

Transactions related to the primary operations of a business, such as sales revenue and expenses, that affect the cash flow.

Current Assets

Assets that a company expects to convert to cash, sell, or consume within one year or its operating cycle, whichever is longer.