Operating activities

Definition

Operating activities refer to the core business functions and processes that generate revenue and incur expenses. These activities are crucial for maintaining daily operations and include tasks like sales, production, marketing, and administration.

5 Must Know Facts For Your Next Test

1. Operating activities are reported on the cash flow statement under the operating section.
2. Cash flows from operating activities can be calculated using either the direct or indirect method.
3. Positive cash flow from operating activities indicates a company is generating sufficient revenue to cover its expenses.
4. Non-cash items like depreciation and changes in working capital are adjusted when calculating cash flows from operating activities using the indirect method.
5. Forecasting operating activities is essential for financial planning as it helps predict future cash flows and operational efficiency.

Review Questions

• What section of the cash flow statement details operating activities?
• Why is forecasting operating activities important for financial planning?
• What methods can be used to calculate cash flows from operating activities?

Related terms

Cash Flow Statement: A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents.

Indirect Method: A way of calculating net cash provided by operating activities by adjusting net income for changes in non-cash items.

Working Capital: The difference between a company's current assets and current liabilities, crucial for daily operations.