Course Outline
Join PRO

What is cash from operating activities?

Author:
Harold Averkamp, CPA, MBA

Definition of Cash from Operating Activities

Cash from operating activities usually refers to the first section of the statement of cash flows. Cash from operating activities focuses on the cash inflows and outflows from a company’s main business activities of buying and selling merchandise, providing services, etc.

Basically, the cash from operating activities includes the company’s cash flows except for those reported as cash flows from 1) investing activities (buying and selling property, plant and equipment, buying and selling long-term investments), and 2) financing activities (borrowing and repaying short-term and long-term debt, issuing and buying back shares of stock, paying dividends).

Examples of Reporting the Cash from Operating Activities

In the U.S., the cash from operating activities can be presented using either of the following methods:

  • Indirect method (almost always used)
  • Direct method (rarely used)

The indirect method begins with the company’s net income based on the accrual method. That amount is then converted to the cash from operating activities by adding back depreciation expense and adjusting for the changes in accounts receivable, inventory, accounts payable, and most other current assets and current liabilities.

The direct method for reporting the cash from operating activities lists the following: the amounts collected from customers, the payments to suppliers, the payments for operating expenses, payments for interest expense, and payments for income taxes.

Join PRO to Track Progress

Features

Free

PRO

Lifetime Access (One-Time Fee)
Explanations
Quizzes
Q&A
Dictionary
Bookkeeping Video Training
Financial Statements Video Training
Visual Tutorials
Quick Tests
Quick Tests with Coaching
Cheat Sheets
Flashcards
Crossword Puzzles
Word Scrambles with Coaching
Bookkeeping Study Guide
Managerial and Cost Accounting Study Guide
Certificates of Achievement
Bookkeeping Certificate of Excellence
Business Forms
Printable PDF Files
Progress Tracking
Motivational Badges and Points
Motivational Medal Rankings
Motivational Activity Streaks
Public Profile Page of Achievements

About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

Read 3,033 Testimonials

PRO for Teams
  • Easily onboard new users and team admins
  • Monitor individual user progress and grades
  • Monitor team progress and compare users
  • View average grades and find problem areas
  • Monitor recent activity and user achievements
PRO for Teams
Take the Tour Join Pro Upgrade to Pro