I have studied a Cash flow statement many times. But, I am still finding it difficult to classify transaction against each category i.e CFO, CFF or CFI.
Does any1 of you have any trick or quick method to resolve this? So that I can memoriese it… …
Each time the cash flow things comes… my mind goes in confused state.
Dont memorize it, just try to understand it and it’s pretty easy. read it one more time
It might be confusing at first but give it some time
I agree with Alaa it can be a little bit confusing but continue to read it over and over again. However, I gained a peripheral understanding of it this way:
CFO - Operating, business related transactions, buying, selling of goods, performance of services. Think day to day… operations.
CFF - Think Capital Structure which is primarily debt and equity related (only the debt and equity of the individual company, nothing outside of it).
CFI - Think INVESTING in real estate, PPE, anything that supports CFO but in the long-run.
Then there are exceptions to the rules that may differ between GAAP (almost always stricter) and IFRS - Interest and dividends paid/received. These can learned but become easier with an understanding of the above items.
Interest paid and received and Dividends received are CFO items under GAAP
Dividends paid are CFF items under GAAP (remember capital structure?)
Interest/Dividends paid - CFO or CFF under IFRS
Interest/Dividends received - CFO or CFI under IFRS
(Notice how IFRS is a tad bit flexible)
Hope this helps!