{"id":4028,"date":"2019-10-06T13:34:00","date_gmt":"2019-10-06T13:34:00","guid":{"rendered":"https:\/\/analystprep.com\/cfa-level-1-exam\/?p=4028"},"modified":"2026-03-01T08:38:23","modified_gmt":"2026-03-01T08:38:23","slug":"cash-flows-operating-investing-financing-activities","status":"publish","type":"post","link":"https:\/\/analystprep.com\/cfa-level-1-exam\/financial-reporting-and-analysis\/cash-flows-operating-investing-financing-activities\/","title":{"rendered":"Cash Flows from Operating, Investing, and Financing Activities"},"content":{"rendered":"\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"Which transaction is classified as a cash flow from investing activities?\",\n    \"text\": \"Which of the following would be classified as a cash flow from investing activity?\\n\\nA. Proceeds from the issuance of bonds.\\n\\nB. Proceeds from the sale of machinery.\\n\\nC. Cash received from the sale of inventory.\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is B. Proceeds from the sale of machinery are classified as cash flows from investing activities. The issuance of bonds is a financing activity, while the sale of inventory is an operating activity.\"\n    }\n  }\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"QAPage\",\n  \"mainEntity\": {\n    \"@type\": \"Question\",\n    \"name\": \"How are shipping expenses and purchase of production equipment classified in the cash flow statement?\",\n    \"text\": \"How would you classify the cash flow related to paying for shipping expenses of product materials and purchasing a new production machine, respectively?\\n\\nA. Both are operating cash flows.\\n\\nB. Investing cash flow; and operating cash flow.\\n\\nC. Operating cash flow; and investing cash flow.\",\n    \"answerCount\": 1,\n    \"acceptedAnswer\": {\n      \"@type\": \"Answer\",\n      \"text\": \"The correct answer is C. Shipping expenses related to product materials are classified as operating cash flows because they are part of normal business operations. The purchase of a new production machine is classified as an investing cash flow because it involves acquiring a long-term asset.\"\n    }\n  }\n}\n<\/script>\n<script type=\"application\/ld+json\">\n{\n  \"@context\": \"https:\/\/schema.org\",\n  \"@type\": \"VideoObject\",\n  \"name\": \"Understanding Cash Flow Statements (2025 Level I CFA\u00ae Exam \u2013 FRA\u2013Module 5)\",\n  \"description\": \"This video explores financial statement analysis, focusing on understanding and interpreting cash flow statements, key differences between operating, investing, and financing activities, and methods for cash flow presentation. It also highlights their integration with balance sheets and income statements, emphasizing practical applications for forecasting and financial analysis.\",\n  \"uploadDate\": \"2022-04-14T00:00:00+00:00\",\n  \"thumbnailUrl\": \"https:\/\/img.youtube.com\/vi\/KlfghhEnOyE\/maxresdefault.jpg\",\n  \"contentUrl\": \"https:\/\/youtu.be\/KlfghhEnOyE\",\n  \"embedUrl\": \"https:\/\/www.youtube.com\/embed\/KlfghhEnOyE\",\n  \"duration\": \"PT54M03S\"\n}\n<\/script>\n\n\n<p><iframe loading=\"lazy\" src=\"\/\/www.youtube.com\/embed\/KlfghhEnOyE\" width=\"611\" height=\"343\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<p>The cash flow statement gives information on a company\u2019s cash receipts and payments during a specified period of time. This information can help users of financial statements (creditors, investors, analysts, etc.) evaluate a company\u2019s liquidity and solvency.<\/p>\n<h2><strong>Components of the Cash Flow Statement<\/strong><\/h2>\n<p>There are three components of the Cash Flow Statement:<\/p>\n<ul>\n<li><b>Cash Flow from Operating Activities<\/b>: this provides information on cash flows that are derived from the day-to-day activities of a company. Among others, these cash flows include proceeds from the sale of inventory, and from the provision of services or other activities that are not related to financing or investing. Further, cash flows from operating activities also include cash receipts and payments arising from dealing or trading in securities (not for investment purposes);<\/li>\n<\/ul>\n<ul>\n<li><b>Cash Flow from Investing Activities<\/b>: this provides information on cash flows that are derived from the purchase and sale of long-term assets and other investments. Such ventures include the purchase or sale of property, plant, and equipment, intangible assets, and investments in the debt and equity issued by other companies; and<\/li>\n<\/ul>\n<ul>\n<li><b>Cash Flow from Financing Activities<\/b>: this provides information on cash flows that are derived from acquiring or repaying capital. Cash inflows would arise from the issuance of stock or bonds and borrowing, while cash outflows would include cash payments for repurchasing stock and repaying bonds or other borrowings.<\/li>\n<\/ul>\n<blockquote>\n<h3><strong>Question 1<\/strong><\/h3>\n<p>Which of the following would be classified as a cash flow from investing activity?<\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li data-tadv-p=\"keep\">Proceeds from the issuance of bonds.<\/li>\n<li data-tadv-p=\"keep\">Proceeds from the sale of machinery.<\/li>\n<li data-tadv-p=\"keep\">Cash received from the sale of inventory.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>B<\/strong>.<\/p>\n<p>Proceeds from the sale of machinery is an example of cash derived from an investing activity.<\/p>\n<p>&nbsp;<strong>A is incorrect<\/strong> because proceeds from the issuance of bonds relate to a financing activity.<\/p>\n<p><strong>C is incorrect<\/strong> because the sale of inventory is an operating activity.<\/p>\n<h3><strong>Question 2<\/strong><\/h3>\n<p>How would you classify the cash flow related to paying for shipping expenses of <span style=\"color: initial;\">product materials and <\/span><span style=\"color: initial;\">a new production machine, respectively?<\/span><\/p>\n<ol style=\"list-style-type: upper-alpha;\">\n<li data-tadv-p=\"keep\">Both are operating cash flows.<\/li>\n<li data-tadv-p=\"keep\">Investing cash flow; and operating cash flow.<\/li>\n<li data-tadv-p=\"keep\">Operating cash flow; and investing cash flow.<\/li>\n<\/ol>\n<p><strong>Solution<\/strong><\/p>\n<p>The correct answer is <strong>C<\/strong>.<\/p>\n<p>The first cash outflow is an operating activity. This is because it is related to the production activities of the company. The second cash outflow is an investing activity since it is related to the acquisition of a long-term asset.<\/p>\n<\/blockquote>","protected":false},"excerpt":{"rendered":"<p>The cash flow statement gives information on a company\u2019s cash receipts and payments during a specified period of time. This information can help users of financial statements (creditors, investors, analysts, etc.) evaluate a company\u2019s liquidity and solvency. Components of the&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5],"tags":[],"class_list":["post-4028","post","type-post","status-publish","format-standard","hentry","category-financial-reporting-and-analysis","blog-post","no-post-thumbnail","animate"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.9 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>Understanding Cash Flow Activities: O, I, F | CFA Level 1<\/title>\n<meta name=\"description\" content=\"Learn about the three components of the Cash Flow Statement. 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