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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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What are the three categories into which inflows and outflows of cash are divided? Be sure to describe what is included in each of these three categories.

To determine

Introduction:

Cash flow statements are the statements that determines the inflow and outflow of cash from three major activities that are carried out in a business i.e. operating activities, investing activities and financing activities.

To describe:

To describe briefly the three categories into which cash flows from operating activities is divided.

Explanation

Cash flow from operating activities calculates the inflow and outflow of cash from day-to-day activities those are production, sales and payments collected. It includes operating income and operating expenses for the year.

Operating activities include:

  • Interest received on loans
  • Payment made to supplier for raw materials
  • Payments made to the employees
  • Cost incurred on advertisement, shipping the product
  • Net increase or decrease in the value of assets

Cash flow from investing activities calculates the inflow and outflow of cash from purchase and sale of fixed asset...

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