Hey guys, I am currently on chapter 27. I Find it hard to know if an activity is supposed to be in which category. How do you know where to put each activity? Any smart rules people use to determine this?
I struggled through the same issue on the CPA exam and found a little trick that always seems to work.
If the transaction is part of the ordinary DAILY course of business (ie: receivables, deprecation gains, losses) these are operating. If the transactions are part of buying or selling something for long-term use in the business (ie: purchase PP&E, sold land) they are investing. If the transaction is anything to either receive or give payments to capital providers (ie: dividends, bond issue) it is financing.
Hope this helps.
Except that _interest paid _ is CFO (under US GAAP).
Yes, that is very helpful. Seems to work very well. Thank you guys very much.
There is another thread that I started a month back on this exact topic. S2000 provided a great write up. Suggest you check it out
FYI - under GAAP
Dividend paid is also financing
Dividend received is operating
Interest paid is operating
Operating means cash flows which are generated by normal operating functions of the company. Like a computer manufacturing co. Dell’s revenue comes from making and selling PC’s . So It is an operating revenue .
Financing means if the co. raises funds through capital or debt market . That cash flow is considered to be financing cash flow .
Investing cash flow is raising or generating funds through sale of assets like the co. sells land to acquire funds etc.