In order to
prepare a cash flow statement by indirect method we have to divide the cash
flow activities into three different categories. These categories are:-
·
Financial
Activities
·
Investing
Activities
·
Operating
Activities
Financing Activities of Cash Flow
Financing
activities of the cash flow are the activities in which a firm enjoys cash in
flows from its investors such as creditors and banks. The cash outflow as
paying the dividend to the share holders is also considered to be the financing
activity of a firm. Long term liabilities and equities are also listed in the
financing activities of a firm. Other financing activities include repurchase
of the company shares, repayment of the debt principle, receipts of donor
donated cash in the case of non-profit organizations and NGOs.
Investing Activities of Cash Flow
Investing
activities involve the sales and purchase of the assets. The sale of the asset
is termed as cash in flow where the purchase of the assets is termed as cash
outflow. Assets involve land, property, equipments, offices, buildings and
marketable securities of a firm. Other investing activities include loan
received by the customers and loans issued to the suppliers. Moreover payments
related to the mergers and acquisitions are also included in investing activities.
Operating Activities
All the
activities related to the production, sales and marketing of the goods and
services are included in the operative activities. In include purchasing raw
material for production, cost spent on building and maintaining inventory, cost
involved in marketing, advertising and shipping the product to the end user.
Operating cash flows include receipts of the goods or services sold to the
customers, receipts of loans, debt and equity portfolio of the firm, interest
that is earned on the issued loans, payment that is done to the suppliers on
receiving the goods or raw material, salaries of the employees, payments made
as interest and cost of the purchased merchandise. All these activities are
required to prepare an accurate and precise cash flow statement by indirect
method.
