What is a Cash Flow: Three Major Sources of Cash
Before you can understand what is an uneven cash flow stream, first you must look at cash flow--the movement of cash into or out of a business, project, or financial product. It is usually measured during a specified, finite period of time.
There are three sources of cash flows. These three sources are integrated in a cash flow statement that accompanies all other financial statements of the company. Examples of appropriate accounts are listed for each type of cash flow source.
1. Operational Cash Flows: Cash received or expended as a result of the company's internal business activities. It includes cash earnings plus changes to working capital.
Examples of operational cash flow source:
Sale of goods or services
Other (utilities, rent, etc.)
Note: Cash inflows from interest or dividends could be considered investing or financing activities.
2. Investment Cash Flows: Cash received from investing activities include transactions and events involving the purchase and sale of securities (excluding cash equivalents), land, buildings, equipment, and other assets not generally held for resale. It also covers the making and collecting of loans. Investing activities are not classified as operating activities because they have an indirect relationship to the central, ongoing operation of your business (usually the sale of goods or services).
Sale of plant assets
Sale of a business segment
Sale of investments in equity securities of other entities or debt securities (other than cash equivalents)
Collection of principal on loans made to other entities
Purchase of plant assets
Purchase of equity securities of other entities or debt securities (other than cash equivalents)
Loans to other entities
3. Financing Cash Flows: Cash received from all financing activities dealing with the flow of cash to or from the business owners (equity financing) and creditors (debt financing). For example, cash proceeds from issuing capital stock or bonds would be classified under financing activities. Likewise, payments to repurchase stock (treasury stock) or to retire bonds and the payment of dividends are financing activities as well.
Issuance of own stock
Borrowing (bonds, notes, mortgages, etc.)
Dividends to stockholders
Repaying principal amounts borrowed
Repurchasing business's own stock (treasury stock)
The following is the general format for a statement of cash flows that integrates the three sources of cash flows:
The Name of the Company
Statement of Cash Flow
For the Period ________
Cash Provided (or used) by:
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