ACTIVITY 43 Purpose: UNDERSTANDING THE STATEMENT OF CASH FLOWS Understand positive amounts indicate cash inflows and negative amounts Indicate cash outflows. Identify operating, investing, and financing activities. The ongoing operation of any business depends on its ability to generate cash from operations. It is co that an organization needs to pay employees, suppliers, creditors, and investors not profits. Thereo the real issue is cash. The statement of cash flows organizes cash inflows and cash outflows as c activities, investing activities, and financing activities because... MANAGEMENT uses accounting information to make decisions regarding Financing Investing -> Operating -> FINANCING ACTIVITIES: INVESTING ACTIVITIES: OPERATING ACTIVITIES: FINANCING ACTIVITIES: INVESTING ACTIVITIES: CASH INFLOWS Cash from customers operating Creditors lend and owners contribute $$$ to finance a company. The $$$ obtained through financing is used to purchase revenue generating assets such as property, plant, and equipment (PPE) and investment securities. PPE and other revenue-producing assets are used to manufacture goods, offer services, and generate dividends and interest, that in t result in $$$ profits. $$$ profits are reinvested to internally finance the company. $$$ obtained through financing are used to purchase revenue producing assets... and the cycle continues. TRANSACTIONS REPORTED ON THE STATEMENT OF CASH FLOWs OPERATING ACTIVITIES (Direct Method) Cash from interest and dividends Other operating cash receipts CASH INFLOWS Sell property, plant, equipment Sell investment securities Receive loan repayments CASH INFLOWS Borrow cash from creditors Issue debt securities (bonds) Issue equity securities (capital stock) Q1 CASH OUTFLOWS Cash paid to suppliers Cash paid to employees Interest paid Other operating cash payments INVESTING ACTIVITIES CASH OUTFLOWS Purchase property, plant, equipment Purchase securities Make loans FINANCING ACTIVITIES CASH OUTFLOWS Repay amounts borrowed (debt principal) Repurchase equity shares (treasury stock) Pay cash dividends On the statement of cash flows, a positive amount indicates a cash (inflow/ outflow), whereas a negative amount indicates a cash (inflow/ outflow).