Cash Flow Statement — Important Questions

Operating Activities, Investing Activities, Financing Activities

AS-3 classifies cash flows into three categories: Operating Activities (main business activities), Investing Activities (acquisition/disposal of long-term assets), and Financing Activities (changes in capital and borrowings).

Cash receipts from sale of goods, Cash payments to suppliers, Payment of salaries to employees

Operating activities include cash flows from main business activities like sales, purchases, and employee payments. Purchase of machinery is investing activity, and issue of shares is financing activity.

Issue of debentures, Repayment of bank loan, Dividend paid

Financing activities involve changes in capital and borrowings. Issue of debentures, loan repayment, and dividend payment are financing activities. Purchase of inventory is operating activity, and sale of machinery is investing activity.

AS-3

Cash Flow Statement is prepared according to Accounting Standard-3 (AS-3) which provides guidelines for the preparation and presentation of cash flow statements.