Sarthaks Test
0 votes
in Accounts by (64.1k points)

How the various activities are classified (as per AS-3 revised) while preparing cash flow statement?

1 Answer

0 votes
by (106k points)
selected by
Best answer

As per Accounting Standard-3 various activities of cash flow statement are classified into three categories as follows 

(i) Cash Flow from Operating Activities :These are the principal revenue producing activities of the enterprise and other activities. The cash flow statement begins with the operating activities section. Operating activities generally reflect cash generated and/or paid as a result of the firm’s core business functions. Under US GAAP, this category incorporates the cash received from customers, paid to suppliers, paid for operating costs, paid for income taxes, received from interest or dividends, and paid for periodic interest costs. 

(ii) Investing Activities: These are the acquisition and disposal of long-term assets, other investments not included in cash equivalents. Cash flows from investing activities are those involving non-current capital assets used in the firm’s operations, such as Property, Plant, Equipment (PP&E) and intangible assets. When a company invests in new long-term capacity by acquiring either PP&E or another company, the investment is a cash outflow from investing activities. Disposals of these types of assets for cash generate inflows. 

(iii) Financing Activities :These are the activities that result in changes in the size and composition of the owner’s capital and borrowings of the enterprise. Cash flows from financing activities are those that take place between a firm and its investors. These include both the equity investments of stockholders (owners) and the loans from bondholders and other creditors. When the company issues new shares, it records a cash inflow from financing, and when it repurchases shares, pays dividends or pays off debt, it records a cash outflow.

Related questions

Welcome to Sarthaks eConnect: A unique platform where students can interact with teachers/experts/students to get solutions to their queries. Students (upto class 10+2) preparing for All Government Exams, CBSE Board Exam, ICSE Board Exam, State Board Exam, JEE (Mains+Advance) and NEET can ask questions from any subject and get quick answers by subject teachers/ experts/mentors/students.