The cash flow statement has three distinct sections. Which are they?

The cash flow statement has three distinct sections. Which are they?

• A. Cash flows from operating activities, cash flows from investing, and cash flows from financing activities
• B. Cash receipts, cash disbursements, and cash reserves
• C. Net income, depreciation, and changes in working capital
• D. Assets, liabilities, and equity

Answer: (A)

The question tests how the cash flow statement is organized to show different kinds of cash activity. The correct framing lists three sections: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Operating activities reflect the cash generated or used by the business’s day-to-day operations, including adjustments for noncash items and changes in working capital. Investing activities cover cash spent on or received from long-term assets and investments. Financing activities involve cash related to borrowing, repaying debt, issuing equity, and paying dividends. This structure helps you see where cash is coming from and how it’s used, separate from accrual profits. Other options don’t fit because they describe either nonstandard categories (cash receipts, cash disbursements, and cash reserves), or items used to compute operating cash flow rather than the sections themselves (net income, depreciation, and changes in working capital), or balance sheet components (assets, liabilities, and equity) rather than cash flow sections.

The question tests how the cash flow statement is organized to show different kinds of cash activity. The correct framing lists three sections: cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Operating activities reflect the cash generated or used by the business’s day-to-day operations, including adjustments for noncash items and changes in working capital. Investing activities cover cash spent on or received from long-term assets and investments. Financing activities involve cash related to borrowing, repaying debt, issuing equity, and paying dividends. This structure helps you see where cash is coming from and how it’s used, separate from accrual profits.

Other options don’t fit because they describe either nonstandard categories (cash receipts, cash disbursements, and cash reserves), or items used to compute operating cash flow rather than the sections themselves (net income, depreciation, and changes in working capital), or balance sheet components (assets, liabilities, and equity) rather than cash flow sections.