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Explain the Value of Separating Cash Flows into Operating Activities

question 105

Essay

Explain the value of separating cash flows into operating activities, investing activities, and financing activities to financial statement users in analyzing cash flows and the company's financial performance and condition.


Definitions:

Operating Activities

Transactions and events that relate to the core business functions, such as receipts from sales of goods and services, payments to suppliers, and salaries to employees.

Depreciable Asset

A type of asset that loses value over time due to wear and tear, decay, or obsolescence, which can be accounted for through depreciation.

Indirect Method

A method of preparing the cash flow statement in which net income is adjusted for non-cash transactions and changes in working capital.

Net Income

The total profit of a company after all expenses and taxes have been deducted from revenue.

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