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Operating activities
13. The amount of cash flows
arising from operating activities is a key indicator of the
extent to which the operations of the enterprise have
generated sufficient cash flows to repay loans, maintain the
operating capability of the enterprise, pay dividends and make
new investments without recourse to external sources of
financing. Information about the specific components of
historical operating cash flows is useful, in conjunction with
other information, in forecasting future operating cash flows.
14. Cash flows from operating
activities are primarily derived from the principal
revenue-producing activities of the enterprise. Therefore,
they generally result from the transactions and other events
that enter into the determination of net profit or loss.
Examples of cash flows from operating activities are:
(a) cash receipts from the sale
of goods and the rendering of services;
(b) cash receipts from royalties,
fees, commissions and other revenue;
(c) cash payments to suppliers
for goods and services;
(d) cash payments to and on
behalf of employees;
(e) cash receipts and cash
payments of an insurance enterprise for premiums and claims,
annuities and other policy benefits;
(f) cash payments or refunds of
income taxes unless they can be specifically identified with
financing and investing activities; and
(g) cash receipts and payments
from contracts held for dealing or trading purposes.
Some transactions, such as the sale of an item of plant, may
give rise to a gain or loss which is included in the
determination of net profit or loss. However, the cash flows
relating to such transactions are cash flows from investing
activities.
15. An enterprise may hold
securities and loans for dealing or trading purposes, in which
case they are similar to inventory acquired specifically for
resale. Therefore, cash flows arising from the purchase and
sale of dealing or trading securities are classified as
operating activities. Similarly, cash advances and loans made
by financial institutions are usually classified as operating
activities since they relate to the main revenue-producing
activity of that enterprise.
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