ICCT Colleges Foundation, Inc.

Conceptual Framework & Accounting Standard – CBACTG01

CHAPTER 2 – ACTIVITY / ASSIGNMENT

Answer the following questions/statements in not less than 5 sentences.

1. The statement of cash flows present cash flows according to the following classifications.
Explain each classification.
a. Operating activities
 Operating activities include transactions that enter into the determination of profit or
loss. These transactions normally affect income statement accounts. Operating activities
are the functions of a business directly related to providing its goods and/or services to
the market. These are the company's core business activities, such as manufacturing,
distributing, marketing, and selling a product or service. Operating activities will
generally provide the majority of a company’s cash flow and largely determine whether
it is profitable. Some common operating activities include cash receipts from goods sold,
payments to employees, taxes, and payments to suppliers. These activities can be found
on a company's financial statements and in particular the income statement and cash
flow statement.
b. Investing activities
 Investing activities include transactions that affect long-term assets and other non-
operating assets. Investing activities comprise the second section of the cash flow
statement where it is representing the cash inflow and outflow of the business. This
inflow and outflow of cash can be obtained by investing in non-current assets such as
PPE (Plant, Property and Equipment), investment in securities and from the sale of
assets and securities, acquisition of other businesses. Cash flow from investing activities
deals with the cash inflow and outflow related to sale and purchase of assets, loan
amount received from customers or the one taken from the suppliers and any other
payments that are related to any kind of merger and acquisitions.

c. Financing activities
 Financing activities include transactions that affect equity and non-operating liabilities.
Financing activities are the different transactions which involve movement of funds
between the company and its investors, owners or creditors to achieve long term growth
and economic goals and have effect on the equity and debt liabilities present on the
balance sheet; Such activities are can be analyzed through the cash flow from finance
section in the cash flow statement of the company. In simple terms, Financing Activities
refer to the act of raising money or returning this raised money by promoters or owners
of the firm in order to grow and invest in assets like purchasing new machinery, open
new offices, hiring more workforce, etc. These transactions are normally part of long
term growth strategy and hence affect the long term assets and liabilities of the firm.

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