Categories of Cash Flow Statement

Meaning of Cash Flow Statement

A balance sheet is a snapshot view of the status of a firm’s funds at one instance of time. But it does not give a picture of from where the funds have come and how funds from various sources wree received and utilised during the year. A flow statement explains the changes that took place in a balance sheet account or group of accounts during the period between the dates of two balance sheets. Income statement is also a flow statement. Similarly two flow statements cash flow and fund flow are widely used.

It is very similar to Funds flow analysis. The major difference between the two is that cash flow statement analyses the receipts and application of cash only (which is a part of working capital) whereas funds flow statement analyses movement in the funds as a whole.

Categories of Cash Flow Statement

Operating Activities

Operating activities are defined as all transactions that are not investing or financing
activities. These transactions include the cash inflows associated with sales, interest and dividend revenues and outflows associated with purchases, operating expenses, interest, taxes etc.

In nutshell, if we consider the format of the balance sheet, transactions occurring in current assets and current liabilities and transaction of profit and loss account fall under this category. While calculating cash from operations, all non-cash as well as non-operating incomes and expenditures are excluded.

Investing Activities

Investing activities include acquiring or disposing off long term assets such as plants and
equipment, securities, lending money etc. Increase or decrease in accounts receivables and inventory are not treated as investment activities; they are included in operating activities. In this category falls the transaction under the heads Fixed assets and Investments.

Financing Activities

Financing activities include the borrowing of funds and issue of securities, their repayments etc. Transaction coming under the heads Capital and Reserves and surplus, Secured and Unsecured loans are financing activities.