Why is it important to classify cash flows according to operating, investing, and financing activities? What does each category represent?
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a) Why is it important to classify cash flows according to operating, investing, and financing activities? What does each category represent?
b) Also, What are the three types of capital available to a firm (assume leasing is a form of debt)? How do firms obtain these three types of capital?
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The following posting helps with a problem involving operating, investing and financing activities. Your tutorial is two pages and two references.
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a.....Why is it important to classify cash flows according to operating, investing, and financing activities?
Accounting is the means by which information about an enterprise is communicated and, thus, is sometimes called the language of business. Accountants use the term financial position to describe an entity's financial resources and obligations at one point in time and the term results of operations to describe its financial activities during the year. Financial accounting information is designed primarily to assist investors and creditors in deciding where to place their scarce investment resources.
Accountants summarize this information in a balance sheet, income statement, and statement of cash flows. Because the balance sheet, income statement, and statement of cash flows are derived from the same underlying financial information, they are said to "articulate," meaning that they relate closely to each other.
The statement of cash flows provides information about cash receipts and cash payments of an entity during a period. A secondary objective is to provide information about the operating investing and financing activities of the entity during the period. We know a great deal about the company that is valuable in assessing its future cash flows information that is useful to investors, creditors, management, and others. By ...
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