Classification of the cash flows

Cash involving operating activities

This section of the cash flow statement reports the company’s net income and then converts it from the accrual basis to the cash basis by using the changes in the balances of current asset and current liability accounts, such as:

  • Accounts Receivable

  • Inventory

  • Supplies

  • Prepaid Insurance

  • Other Current Assets

  • Notes Payable (generally due within one year)

  • Accounts Payable

  • Wages Payable

  • Payroll Taxes Payable

  • Interest Payable

  • Income Taxes Payable

  • Unearned Revenues

  • Other Current Liabilities

In addition to using the changes in current assets and current liabilities, depreciation and the gains/losses on the sale of long-term assets are removed so that the income statement net income is converted from the accrual basis to cash.

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