Understanding Cash Flow Statement Classification

The Cash Flow Statement classifies cash flows into three activities: Operating, Investing, and Financing.

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Analysis of Each Item

Cash from Operating Activities includes cash flows from the principal revenue-generating activities of the business. Cash receipts from sale of goods and rendering of services directly relate to the main business operations.

Match: (A) → (II)

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Cash from Financing Activities includes activities that result in changes in the size and composition of owner's capital and borrowings. Dividends paid on equity and preference capital are payments to owners/shareholders, representing a financing cash outflow.

Match: (B) → (I)

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Cash from Investing Activities includes the acquisition and disposal of long-term assets and other investments. Cash receipts from disposal of fixed assets (including intangibles) represent the sale of long-term assets.

Match: (C) → (IV)

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Cash and Cash Equivalents include cash on hand, demand deposits with banks, and short-term highly liquid investments. Bank balance is a component of cash and cash equivalents.

Match: (D) → (III)

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Final Matching

List-I Item	Matches with	List-II Item
(A) Cash from Operating Activities	→	(II) Cash receipts from sale of goods and services
(B) Cash from Financing Activities	→	(I) Dividends paid
(C) Cash from Investing Activities	→	(IV) Cash receipt from disposal of fixed assets
(D) Cash and Cash Equivalents	→	(III) Bank balance

Correct Answer: Option 4 → (A) - (II), (B) - (I), (C) - (IV), (D) - (III)