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A. Operating Activity:
Operating Cash Flow is a key indicator to judge the ability of the
enterprise to maintain its operating capability, pay dividends repay
loans and Make new investments without recourse to external sources
of financing. Cash Flow from operating Activity is determined from
the principal revenue producing activity of the business entity. For
Example:
a) Cash receipts from the sale of goods and services.
Prime Cost
Factory Overhead
Office and Administrative Overhead
Selling and Distribution Overhead
Actual Basis
Cash Basis
(Accrual/Due Basis)
Earned
Eliminate Revenue
not earned in cash
Revenue
Net Profit
Incurred
Expenses
B. Investing Activities:
Eliminate Expenses
not paid in cash
C. Financing Activities:
The final and last activity considered in preparation of cash flow
statement is determining cash flows from financing activity which
involve raising and repayment of capital and loans (outsiders long
term liabilities).
Interest paid and Dividend paid is also a part of cash outflows from
financing activity.