What Is The Difference Between Cash Flow From Operating Activities, And Cash Flows From Fiancing Activities?
- on 10.26.09
- Cash Flow Management
- 1 Comment
- Cash Today
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I can’t tell the difference. In my book it says financing activities should be directly relate to company itself. But when I take a quiz it seems Cash paid for interest, and cash paid for tax is not consider directly related to company itself, rather being part of cash flow from operating activities. I am really confused, can you guys help me?
I know, this can be confusing, and sometimes, there is no easy answer. It depends on the management’s cash management strategy. A single transaction may include cash flows that are classified differently. For example, when the cash repayment of a loan includes both interest and principal, the interest element may be classified as an operating activity and the principal element is classified as a financing activity.
Usually, however, interest on short term payables, e.g. on accounts payable, is treated as operating, whilst interest on long-term borrowings like mortgages and bonds is treated as financing.