In the statement of cash flows, net cash flows from operating activities plus net cash flows from investing activities plus net cash flows from financing activities for the period equal:Group of answer choicesthe cash balance at the beginning of the period.the cash balance at the end of the period.operating profit.total net increase or decrease in cash held for the period.
Question
In the statement of cash flows, net cash flows from operating activities plus net cash flows from investing activities plus net cash flows from financing activities for the period equal:Group of answer choicesthe cash balance at the beginning of the period.the cash balance at the end of the period.operating profit.total net increase or decrease in cash held for the period.
Solution
The correct answer is: total net increase or decrease in cash held for the period.
Here's why:
The statement of cash flows is divided into three sections: operating activities, investing activities, and financing activities.
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Operating activities include the production, sales and delivery of the company's product as well as collecting payment from its customers. This could include purchasing raw materials, building inventory, advertising, and shipping the product.
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Investing activities include the purchase of capital goods (assets that are expected to generate economic benefits for a long time), investments and loans made to suppliers or received from customers, dividends received.
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Financing activities include the inflow of cash from investors such as banks and shareholders, as well as the outflow of cash to shareholders as dividends as the company generates income.
When you add up the net cash flows from these three activities, you get the total net increase or decrease in cash held for the period. This is because the statement of cash flows is essentially a detailed explanation of the change in the company's cash balance during a specific period.
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