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Terms used in a statement of cash flows

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Describe the following terms as they relate to the statement of cash flows: cash, operating activities, investing activities, and financing activities. What can creditors, investors, and other users glean from an analysis of the statement of cash flows?

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Solution Summary

Common terms used in statements of cash flow are explained.

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Cash:
Cash is the money denoted in the currency of a company's country. For example, in the United States, cash will be denoted in US Dollars. Statement of cash flows shows the cash inflows and outflows of a firm during a period of time. It will show the "sources" and the "uses" of cash.

Operating activities:
The operating activities section of a statement of cash flows shows the inflows and outflows of cash arising out of operating activities (the normal course of business) of a business. It includes cash inflows from sales and accounts receivable, cash outflows for purchase of inventories, cash outflows for operating expenses like salaries, rent, administrative expenses etc. For a sound cash position, a company should have a positive net cash flow from operating activities. A positive cash flow indicates that the firm generated more cash inflows than it spent on daily operations.

Investing activities:
The investing activities ...

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