Classification of Cash Flows

The statement of cash flows, sometimes referred to as the cash flow statement, is classified by activity to provide more detail to help users to assess the ability of a business to generate cash flow from a particular activity.

The classification is based on the commercial substance of the transaction rather than its legal form.

The classification of cash flows is carried out by identifying the cash flow with one of three business activities.

  1. Operating activities cash flow
  2. Investing activities cash flow
  3. Financing activities cash flow

The identification and classification of cash flows into business activities is summarized in the illustration shown below. A PDF version of this diagram is available for download at the bottom of the page.

classification of cash flows v 1.0
Classification of Cash Flows (Click to enlarge)

Statement of Cash Flows Operating Activities

Cash flows from operating activities are cash flows which are generated by the main revenue producing activities of the business, usually cash receipts from the sale of goods and services.

The operating activities cash flow is a key indicator that the trading activities of the business can generate sufficient cash to keep the business operational, repay loans to lenders, and pay dividends to shareholders.

Further details on cash flows from operating activities can be found in our operating cash flow from trading tutorial.

Statement of Cash Flows Investing Activities

Cash flows from investing activities are normally identified by whether or not they result in a change to long term assets (fixed assets). For example, the purchase of equipment results in a cash flow out of the business and an increase in the amount of equipment (long term assets) held by the business. The cash flow would be regarded as an investing activities cash flow.

Further details on this type of cash flow can be found in our cash flow from investing activities tutorial.

Statement of Cash Flows Financing Activities

Cash flows from financing activities can be identified by whether or not they result in a change in either equity or borrowings of the business. For example, the issue of new shares changes the equity of the business, and the cash proceeds from the new issue would be classified as a cash flow from financing activities. Likewise, the repayment of a loan results in a change in the borrowings of the business and the repayment would again be classified as a financing activities cash flow.

Further details on this type of cash flow can be found in our cash flow from financing activities tutorial.

The classification of cash flows diagram used in this article is available for download in PDF format by following the link below.

Classification of Cash Flows November 6th, 2016Team

You May Also Like


Related pages


cash sheet template excelcash flow cycle diagramdirect material usage variance formulacalculate accounts receivable turnoverintercompany receivables and payablesprepaid insurance expenserecording capital leaseunearned revenue exampleactivity ratios examplesexplain double entry bookkeepingaccounting entry for prepaid insurancecalculate vertical analysisformula for markup percentagecost of goods manufactured statementcalculate effective annual interest ratejournalizing transactions in accounting examplesincome statement contribution margin formatgeneral ledger pdfmarkup and profit marginadjusting entries always includevariable cost of goods sold formulagearing ratio analysisreorder point formuladeferred tax in cash flow statementunearned interest incomewhat accounts are affected by closing entriescompute gross marginluca pacioli double entry bookkeepingsix steps of accounting cyclejournal entries and t accountswhat is journal voucher in accountinghow to calculate retained earningreceiveables turnoverinvoice ledgeradjusting entries for dummiescash denomination sheethow to calculate retail margin percentagefuture value formula in excelbank voucher formatadjusting entries for unearned revenuesimple accounting spreadsheet excelformula for acid test ratiouk margin calculatorformula acid test ratiofuture value of annuity due calculatorinternal controls for accounts receivablewhat is cash floatbad debt write off journal entrypresent value annuity calculatorpost closing trial balance should only containexpense account normal balancechange in accounts receivable formulaadjusting entries problemsdouble booking accountingnumber of compounding periodsledger controlinstallment loan examplewhat is imprest amountworksheet templates for wordcalculation of inventory turnoverstock option journal entriesstraight line depreciation calculator exceldirect labor examplesfactoring accountsnormal balance of cashconvertible bond accountingcomparative income statement templateblank general ledgerexpenses are debits or creditscost of finished goods manufactured formulaflexible budget definition and examplebank reconciliation excel templatehow to find variable cost formulappe disposalcontinuous compounding equationdefinition of zero based budgetingsum of digits depreciation