Wize University Introduction to Financial Accounting Textbook > Financial Statements
Cash Flow Classification
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Cash Flow Classification
Operating Activities
Operating activities are the transactions related to the company's day-to-day operations. These activities often involve current assets and current liabilities.
Examples
- Purchasing inventory
- Collection receivables from customers
- Paying employee salaries
Investing Activities
Investing activities are the transactions related to the company's long-term assets and investments.
Examples
- Purchasing a truck
- Selling equipment
- Renovating a building
- Purchasing a patent
- Acquiring another company
Financing Activities
Financing activities are transactions related to the company's long-term liabilities and shareholders' equity. They are activities meant to generate the capital needed in the business.
Examples
- Issuing shares
- Taking and repaying a loan
- Paying dividends
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Example: Cash Flow Classification
During the month of May 2020, ABC Inc. paid $20,000 in salaries and wages, $12,000 to purchase merchandise inventory, $30,000 repaying a loan, $50,000 to purchase a new truck for delivery and it collected $56,000 from customers for good and services provided. What was the cash flow from investing activities?
Practice: Cash Flow Classification
For each of the following transactions, indicate whether it is an operating activity, investing activity or financing activity
Paid cash to purchase new machinery
Practice: Cash Flow Classification
During the month of May 2020, ABC Inc. paid $20,000 in salaries and wages, $12,000 to purchase merchandise inventory, $30,000 repaying a loan, $50,000 to purchase a new truck for delivery and it collected $56,000 from customers for good and services provided. What was the cash flow from operating activities?