Question

Classify the following into (i) Operating Acivities, (ii) Investing Activities, (iii) Financing Activities and (iv) Cash Equivalents while preparing a Cash Flow Statement:
1. Cash Sales
2. Cash Received from Trade Receivables
3. Purchase of Building
4. Sale of Building
5. Issue of Share Capital or Debentures
6. Buy- back of Equity Shares
7. Dividend Paid
8. Interest paid on Debentures or Long - term Loans by (a) Finance Company (b) Non- Finance Company
9. Cash Purchases
10. Cash paid to trade payables
11. Redemption of Debentures and Preference Shares
12. Repayment of Long - term Loan
13. Office Expenses
14. Selling and Distribution Expenses
15. Manufacturing Expenses
16. Purchase of Goodwill
17. Sale of Patent
18. Purchase of Investments
19. Sale of Investments by (a) Finance Company (b) Non- Finance Company
20. Commission and Royalty received
21. Interest received on Investments by (a) Finance company (b) Non Finance company
22. Dividend received on Shares by (a) Finance Company (b) Non - Finance company
23. Rent Paid
24. Rent received if (a) Company's main business is property business (b) Other business
25. Income Tax Paid
26. Income Tax Refund received
27. Bank Balance
28. Short- term Deposits in Bank
29. Investment in Short - term or Marketable Securities

Answer 1

Operating Activities: 1,2,8(a), 9,10,13,14,15,19,(a), 20,21(a)22(a),23,24, (a),25,26
Investing Activities: 3,4,16,17,18,19 (b), 21, (b) 22 (b), 24 (b)
Financing Activities: 5,6,7,8 (b), 11, 12
Cash Equivalents : 27,28, 29

Points to Remember

(1) Banks, Investment Companies and Mutual Fund are financing companies. All trading companies, manufacturing companies and other business establishments are non - financing companies.
$$\begin{array}{cccc}\text{S No.}& \text{Item}& \text{For Financing Company}& \text{For Non - Financing Company}\\ \left(i\right)& \text{Interest Received}& \text{Operating Activity}& \text{Investing Activity}\\ \left(ii\right)& \text{Dividend Received}& \text{Operating Activity}& \text{Investing Activity}\\ \left(iii\right)& \text{Interest Paid}& \text{Operating Activity}& \text{Financing Activity}\\ \left(iv\right)& \text{Dividend Paid}& \text{Financing Activity}& \text{Financing Activity}\end{array}$$
(2) An Investment Company is a Financial Enterprise since purchase and sale of securities (i.e., Shares, Debentures) are its main revenue- producing activity.
Similarly, giving and taking loans is also revenue producing activity for a financial enterprise.
(3) A Manufacturing Company is a Non- Financial Enterprise.
(4) For an Insurance Company, receipt of premium and payment of claim shall be classified as Operating Activities since they relate to main revenue producing activity for it.
(5) For a Real Estate Enterprise, purchase and sale of land and rent received shall be classified as Operating Activities since they relate to its main revenue- producing activity.
(6) For a Computer manufacturing company, manufacturing and selling of computers will be classified as Operating Activities since they relate to main revenue producing activity for it.