Accounting Made Simple 06

Question 1

1. What is CASH FLOW FROM OPERATING ACTIVITIES?

Answer 1

Any cash flows not specifically defined as investing or financing activities.
Common items are:
1. Receipts from the sale of goods and services
2. Payments made to suppliers
3. Payments made to employees
4. Interest payments made to lenders.
5. Tax payments.

Question 2

2. What is CASH FLOW FROM INVESTING ACTIVITIES?

Answer 2

It includes;

1. Cash spent on - or received from-the sale of investments in financial securities (stocks, bonds, etc).
2. Cash spent or received from the sale of CAPITAL ASSETS (i.e., assets expected to last longer than one year).
3. Typical items are:
   - —-purchase or sale of property, plant, or equip.
   - —-purchase or sale of stocks or bonds.

Question 3

3. What is CASH FLOW FROM FINANCING ACTIVITIES?

Answer 3

Includes cash inflows and outflows relating to transactions with the company’s owners and creditors.
Common items include:
a. Cash received from investors when new shares of stock are issued.
b. Dividends paid to shareholders.
c. Cash received from taking out a loan
d. Cash paid TO PAY BACK THE PRINCIPAL OF A LOAN. Interest payments are classified as an OPERATING ACTIVITY.