Understanding Cash Flow Activities and Total Net Cashflow

What are the classifications of each transaction in terms of cash flow activities and whether they represent an inflow or outflow of cash?
  • Drake issued 10,000 shares of common stock for $40,000
    Classification: Financing Activity (Inflow)
  • Drake collected $80,000 from customers on Accounts Receivables
    Classification: Operating Activity (Inflow)
  • Drake Paid $5,000 in interest payments on their bonds
    Classification: Operating Activity (Outflow)
  • Drake purchased a new copy machine and paid cash of $35,000
    Classification: Investing Activity (Outflow)
  • Drake sold their old copy machine for $2,000 cash
    Classification: Investing Activity (Inflow)
  • Drake paid a $4,500 dividend to shareholders
    Classification: Financing Activity (Outflow)
  • Drake borrowed $40,000 cash from the bank on December 28, 2019
    Classification: Financing Activity (Inflow)
  • Drake purchased a patent for $15,000 cash
    Classification: Investing Activity (Outflow)
  • Drake paid $65,000 cash in wages during 2019
    Classification: Operating Activity (Outflow)
  • Drake paid 2018 taxes due in the amount of $10,500 on April 15, 2019
    Classification: Operating Activity (Outflow)

Classification of Cash Flow Activities

In summary, the classifications of each transaction in terms of cash flow activities are as follows:

  • Operating Activities: +$80,000 (Inflows) - $65,000 (Outflows) - $5,000 (Outflows) - $10,500 (Outflows) = $9,500 (Inflow)
  • Investing Activities: -$35,000 (Outflows) + $2,000 (Inflows) - $15,000 (Outflows) = -$48,000 (Outflow)
  • Financing Activities: +$40,000 (Inflow) - $4,500 (Outflow) + $40,000 (Inflow) = $75,500 (Inflow)

Understanding Total Net Cashflow

Based on the calculations from the transactions, operating activities resulted in a net inflow of $9,500, investing activities resulted in a net outflow of $48,000, and financing activities resulted in a net inflow of $75,500.

These classifications are crucial for interpreting the cash flow statement and assessing a company's financial stability and health. By categorizing each transaction into operating, investing, or financing activities, it becomes easier to analyze how cash is being generated or used within the business.

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