The statement of cash flows categorizes a firm’s cash flows according to the nature of the activities that give rise to them (for example, operating, investing, and financing cash flows) and then further differentiates these activities and cash flows into whether they involve sources and uses of cash. Two methods can be used to construct a statement of cash flows: the direct method and the indirect method. Under the indirect method, data from three financial statements are used. Under the indirect method, a decrease in an asset account (excluding the cash and cash equivalent account) reflects (or results in) a cash , and an increase in a liability or equity account represents and gives rise to a cash . A firm engages in a variety of activities that generate cash and require cash payment. The boxes below describe examples of these activities. Classify each transaction as to whether it constitutes an operating, an investing, or a financing cash flow.

Investment activities are related to purchase or sale of shares by the firm, investing in other businesses that gives the firm dividend/interest income etc. Purchase or sale of fixed asset /property falls under investment activities

Financing activities are activities undertaken by the firm to raise capital or funds for the business operations such as issue of shares to public, issue of debentures, loan from bank.

Operating activities are the day to day operations of the business. It represent the core (primary) business of the firm such as increase or decrease in debtors(creditors), stock increase or decrease, regular payments made in the course of the operations etc.

Explanation: