Question

Can I get a detailed definition of cash flows? And also their segment categories and some examples

Answer 1

Cash flow is basically the difference between the cash inflow and cash outflow of the business. Or, we can say that how much cash is increased or decreased over the reporting period. This reporting period can be a month, quarter, half yearly or yearly. For calculating the cash flow, first, cash balance at the beginning of the reporting period is taken and then the cash inflow and outflow over the reporting period is calculated. Secondly, the net cash flow (Increase/decrease) is added or deducted to beginning cash balance. This gives us the closing cash balance.

Segment categories of cash flows -

1. Operating activities- Under this segment, the cash flow from ordinary business activists is reported. Which are of generally of revenue nature.

Example - Cash paid to creditors and cash received from debtors.

2. Investing activities - Under this segment, cash flow from investment in non current assets is reported. This segment is about investment activities undertaken by the entity.

Example - Purcahse of Machinary, Sale of property and plant.

3. Financing activities - Under this segment, cash flow from activities related to common stock , preference stock, bonds debentures is reported. Means cash flow related to financing of the entity is reported.

Example- Issuance of common stock, Redemption of debentures, Purchase of treasury stock.