Operating activities definition
/What are Operating Activities?
Operating activities are those functions of a business that are required for it to provide goods and services to its customers. These constitute its core operating activities. Operating activities is also a classification of cash flows within the statement of cash flows. Items classified within this area are an entity’s primary revenue-producing activity, so cash flows are generally associated with revenues and expenses. Examples of cash inflows from operating activities are cash receipts from the sale of goods and services, and receipts from the collection of accounts receivable. Other cash inflows may come from lawsuit settlements or the settlement of insurance claims. In addition, a business might obtain cash receipts from supplier refunds or licensees.
Examples of Operating Activities
Examples of cash outflows for operating activities are cash payments to employees or suppliers, as well as payments of fines or to settle lawsuits. Other examples are cash payments for taxes, refunds paid to customers, and contributions. A business might also make cash payments to settle asset retirement obligations, or to pay interest to creditors.
Other Types of Cash Flows
The other two classifications used in the statement of cash flows are investing activities and financing activities. The operating activities classification is the default classification, so if a cash flow does not belong in either of the other classifications, it is placed in operating activities.