You have been asked to figure out cash flow for your company. Luckily, your supervisor has only asked you to do the operating activities section! But what items are included here? As you look through the income statement and balance sheet, what stuff do you need to be looking for? Also, what the heck is coming in (inflows) and going out (outflows)? Let’s watch a video and then tackle the operating activities portion of our cash flow statement.

There are several sections that comprise the cash flow statement. The first portion of the cash flow statement includes what are called operating activities. These are cash transactions that happen in the normal course of business, affecting the revenue and expense accounts on your income statement. Operating activities can include the following items:

Collecting cash is the only cash inflow here! The other items all involve cash leaving your business, also called outflows. So from now on, money coming in will be called an inflow and money going out will be called an outflow.

This portion of the cash flow statement can help you to better understand the need to have an effective accounts receivable system! If you sell product, but can’t collect the cash in a timely fashion, it may become difficult to meet your bill payment deadlines. If you don’t pay your bills on time, vendors, your employees and the government (especially the government) might not be happy with you.

In our budgeting module, we put together a cash budget. A cash budget is an important component of the financial health of all companies. Having enough cash coming in from customers and clients to cover the cash going out to meet payment responsibilities is crucial to successfully running or managing a business.