Question

What are the three different components of the statement of cash flows?

Please describe one of them in more detail, and provide any example within each component.

Answer 1

Three different components of statement of cash flow are

1 cash flow from operating activities

2 Cash flow from investing activities

3 cash flow from financing activities .

Explanation of cash flow from operating activities : It tells how much the company is able to earn cash from its day to day activities. So this tells us how much cash is generated by the business activities. Positive cash flow shows that company is able to earn cash from its operations and this cash can be used for investing in assets or repaying of debts and dividends. More the positive cash and better it is. Negative cash flow indicates that company is not able to generate cash hence would require cash from financing and investing activities. Example of cash flow from operations are collections from customer, payment of salaries, payment to accounts payable etc

Example of investing activities are purchase of fixed assets, sale of fixed assets

Example of financing activities are payment of dividend, borrowings of notes payable etc