OPERATING ACTIVITIES

 Operating Activities

1. Definition: These are the principal revenue generating activities of the enterprise.

2. Net Impact: Net impact of operating activities on flow of cash is reported as ‘Cash flows from operating activities’ or ‘cash from operation’.

3. Key Indicator: The amount of cash flows from operating activities is a key indicator of the extent to which the operations of the enterprises have generated sufficient cash flows to :

   (a) Maintain the operating capability of the enterprise,

   (b) Pay dividends, repay loans, and

   (c) Make new investments without recourse to external sources of financing.

4. Information Provided: It provides useful information about financing through working capital.

5. Benefits: Information about the specific components of historical operating cash flows is useful, in conjunction with other information, in forecasting future operating cash flows.