What are the three sections of the statement of cash flows and the function of each?

What are the three sections of the statement of cash flows and the function of each?

• A. Operating activities (cash from core operations), Investing activities (long-term asset purchases/sales), Financing activities (borrowing, debt/equity changes). Indirect method is common for Operating.
• B. Operating includes financing; Investing includes operating; Financing includes taxes.
• C. There are four sections including equity.
• D. Investing activities only relate to income from investments.

Answer: (A)

The statement of cash flows groups cash movements into three activities to show how cash flows through the business. Operating activities cover the cash effects of the company’s core operations—cash received from customers and cash paid to suppliers, employees, and others as part of running the business. Investing activities track cash used for and generated by buying and selling long-term assets and investments, such as equipment or securities. Financing activities reflect cash transactions with owners and creditors, including borrowing, repaying debt, issuing stock, and paying dividends. The indirect method is commonly used for operating activities because it starts with net income and adjusts for non-cash items and changes in working capital to convert accrual-based income into cash from operations. Other choices blend activities incorrectly or propose additional sections; investing relates to asset purchases and sales, not income, and there are only three sections, not four.

The statement of cash flows groups cash movements into three activities to show how cash flows through the business. Operating activities cover the cash effects of the company’s core operations—cash received from customers and cash paid to suppliers, employees, and others as part of running the business. Investing activities track cash used for and generated by buying and selling long-term assets and investments, such as equipment or securities. Financing activities reflect cash transactions with owners and creditors, including borrowing, repaying debt, issuing stock, and paying dividends. The indirect method is commonly used for operating activities because it starts with net income and adjusts for non-cash items and changes in working capital to convert accrual-based income into cash from operations. Other choices blend activities incorrectly or propose additional sections; investing relates to asset purchases and sales, not income, and there are only three sections, not four.