What are the four examples of cash flow related to operating activities?
Inventories, tax assets, accounts receivable, and accrued revenue are common items of assets for which a change in value will be reflected in cash flow from operating activities.
Cash inflows (proceeds) from operating activities include:
Cash receipts from sales of goods and services. Cash receipts for activities considered operating activities of the grantor government, unless specifically classified as another category. Cash receipts for reimbursem*nts of operating activities.
Some common operating activities include cash receipts from goods sold, payments to employees, taxes, and payments to suppliers. These activities can be found on a company's financial statements and in particular the income statement and cash flow statement.
You can find the cash flow from operating activities on a company's cash flow statement. This section normally appears at the top of the statement. You can also calculate operating cash flow by adding together a company's net income, non-cash items (adjustments to net income), and working capital.
There are three cash flow types that companies should track and analyze to determine the liquidity and solvency of the business: cash flow from operating activities, cash flow from investing activities and cash flow from financing activities. All three are included on a company's cash flow statement.
Operating activities are all the things a company does to bring its products and services to market on an ongoing basis. Non-operating activities are one-time events that may affect revenues, expenses or cash flow but fall outside of the company's routine, core business.
Cash inflow may come from sales of products or services, investment returns, or financing. Cash outflow is money moving out of the business like expense costs, debt repayment, and operating expenses. The movement of all your cash—in and out—is recorded in detail on the cash flow statement in your financial reporting.
Answer and Explanation: The correct answer is option 5. Cash inflows from the sale of property, plant, and equipment is not a typical cash flow under operating activities.
Purchase of equipment for cash is not an operating cash flow.
The cash flow from operating activities formula shows you the success (or not) of your core business activities. If your business has a positive cash flow from operating activities, you may be able to fund growth projects, launch new products, pay dividends, reduce the company's debt, and so on.
How to find net income?
It's calculated by subtracting expenses, interest, and taxes from total revenues. Net income can also refer to an individual's pre-tax earnings after subtracting deductions and taxes from gross income.
- Operating cash flow = total cash received for sales - cash paid for operating expenses.
- OCF = (revenue - operating expenses) + depreciation - income taxes - change in working capital.
- OCF = net income + depreciation - change in working capital.
Net income is the profit a company has earned for a period, while cash flow from operating activities measures, in part, the cash going in and out during a company's day-to-day operations. Net income is the starting point in calculating cash flow from operating activities.
1 As operating cash flow begins with net income, any changes in net income would affect cash flow from operating activities. If revenues decline or costs increase, with the resulting factor of a decrease in net income, this will result in a decrease in cash flow from operating activities.
Operating cash flow – also called cash flow from operating activities or cash flow provided by operations – refers to the capital that your business generates through its core business activities. It doesn't include expenses, revenue drawn from investments, or long-term capital expenditures.
If a business's cash acquired exceeds its cash spent, it has a positive cash flow. In other words, positive cash flow means more cash is coming in than going out, which is essential for a business to sustain long-term growth.
Paying interest on a loan is an operating activity (for the statement of cash flows), but paying the principal on the loan is a financing activity.
- Operating activities.
- Investing activities.
- Financing activities.
- Payments made to suppliers.
- Payments made to clear borrowing such as bank loans.
- Money used to purchase any fixed assets.
- Dividends paid out to any shareholders.
- Salaries and wages paid to employees.
- Any transport costs – such as vehicle leasing fees – related to business use.
A basic example of cash flow could be a business that generates income from customer sales and pays employees their salaries and production expenses in order to produce the products being sold. The customer sales, or revenue, would be the cash inflow, while the production costs and salaries would be the cash outflow.
Which two of the following are examples of cash inflows?
- Revenue from customer payments.
- Cash receipts from sales.
- Funding.
- Taking out a loan.
- Tax refunds.
- Returns or dividend payments from investments.
- Interest income.
- Receipt of cash from sales.
- Collection of accounts receivable.
- Receipt or payment of interest.
- Payment for materials and supplies.
- Payment of salaries.
- Payment of principal and interest for operating leases. ...
- Payment of taxes, fines, and license costs.
Cash received from sale of goods is not an operating activity.
Answer and Explanation:
d. Payment of dividends would not be classified as an operating activity. An Operating activity is any activity in an organization that helps to generate revenue. Apart from payment of dividends, all the other given activities can be classified as operating activities.
Out of all the options above, the only exception from the operating activities under a cash flow statement is the payment of dividends. Therefore, the correct answer is Option A. Payments of dividends are considered cash flows from financing activities, not operating activities.
