Classification of Cash Flow Statement - Examples

Dividing the activities of the business related to cash and cash equivalents is known as Classification of Cash Flow Statement.

What is the Classification of the Cash Flow Statement?

Classification of Cash Flow Statement means dividing all activities related to the inflow and outflow of the cash and cash equivalents in the different categories according to the accounting standard - 3 (revised).

Classification of Cash flow statement:

The activities of the business which are related to the cash and cash equivalent are classified as follows:

1. Operating Activities 
2. Investing Activities
3. Financing Activities

1. Operating Activities: -

Operating activities are those activities that are related to the main operations of the business. The main operations mean the operations from which the business earn their principle revenue by spending the amount on the expenditure related to the principle revenue.

The main source of cash inflow in the operating activities is from the selling of final product (it may be cash or in the form of a received from the debtors) and cash outflow on the purchase of raw material and payment of various expenses which are required to make a final product. check out the examples of the cash inflow and outflow in the operating activities as follows:

Examples of Cash Inflow from the Operating Activities: 

We can divide the examples into the two types of companies shown as follows:

1. For Non-financial Companies: -

• Cash received from
  • cash sales of goods or services;
  • Trade debtors(i.e. Debtors and Bills Received); 
  • The commission, fees, rent, or royalties;

2. For Financial Companies: -

• Cash received
  • from sales of security;
  • against the interest on loans granted;
  • as dividend; 

Examples of Cash Outflow from the Operating Activities: 

We can divide the examples into the two types of companies shown as follows:

1. For Non-financial Companies: -

• Cash paid
  • for cash purchase of goods or services;
  • to Trade Creditors(i.e. Creditors and Bills Payables); 
  • for salaries, wages, commission, fees, rent, and other operating expenses;

2. For Financial Companies: -

• Cash paid
  • for purchase of security;
  • against the interest on saving accounts;
  • for salaries, bonus, and other operating expenses;

2. Investing Activities: -

Investing activities are those activities that are related to the acquisition and disposal of the long-term (fixed) assets of the business. In other words, These activities include the purchase and sale of fixed assets i.e. plant and machine, building, land, furniture, and investment(Not a current investment).

Examples of Cash Inflow from the Investing Activities:

• Cash received from
  • sale of fixed assets
  • sale of security i.e equity shares, preference share, warrants, debentures, or bonds
  • repayment of loans and advances to employees

Examples of Cash Outflow from the Investing Activities: 

We can divide the examples into the two types of companies shown as follows:

• Cash paid
  • purchase of fixed assets
  • purchase of security i.e equity shares, preference share, warrants, debentures, or bonds
  • for loans and advances to employees

3. Financing Activities: -

Financing activities are those activities that are related to the raising and repayment of funds from owners or outsiders. In other words, These activities include the issues of share capital, debenture, raising bank loan, buyback of shares capital, the redemption of debentures, and repayment of loans.

Examples of Cash Inflow from the Financing Activities:

• Cash received from
  • issue of shares capital(Equity and Preference shares)
  • Issue of debentures 
  • Borrowing money from a financial institution or other outsiders. 

Examples of Cash Outflow from the Financing Activities: 

We can divide the examples into the two types of companies shown as follows:

• Cash paid
  • buyback of equity shares capital
  • for the redemption of Preference shares and debentures
  • for repayment of loans and borrowing

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References: -

1. Class +2 Accountancy by Sultan Chand & Sons (P) Ltd.