Which statement of cash flows category generally involves current assets and current liabilities?

Which statement of cash flows category generally involves current assets and current liabilities?

• A. Investing activities
• B. Operating activities
• C. Financing activities
• D. All are correct

Answer: (B)

Operating activities focus on the cash flows from day-to-day business operations and are driven by changes in working capital, which means changes in current assets and current liabilities. This includes items like accounts receivable, inventory, accounts payable, and accrued expenses. For example, if accounts receivable increases, cash collected from customers is less than revenue recorded, reducing cash flow from operations. If accounts payable increases, you’re holding onto cash longer, which increases cash flow from operations. Net income is adjusted for non-cash items and for these working capital changes to determine cash generated by operating activities. Investing activities involve long-term assets such as property, plant, and equipment and investments, not current working capital. Financing activities involve obtaining or repaying capital and distributions, like debt, equity, and dividends.

Operating activities focus on the cash flows from day-to-day business operations and are driven by changes in working capital, which means changes in current assets and current liabilities. This includes items like accounts receivable, inventory, accounts payable, and accrued expenses. For example, if accounts receivable increases, cash collected from customers is less than revenue recorded, reducing cash flow from operations. If accounts payable increases, you’re holding onto cash longer, which increases cash flow from operations. Net income is adjusted for non-cash items and for these working capital changes to determine cash generated by operating activities.

Investing activities involve long-term assets such as property, plant, and equipment and investments, not current working capital. Financing activities involve obtaining or repaying capital and distributions, like debt, equity, and dividends.