Future Business Leaders of America (FBLA) Agribusiness Practice Test

What are the primary activities documented in a statement of cash flows?

1. Budget planning and forecasting

2. Operating, investing and financing

3. Cost cutting and efficiency measures

4. Sales growth and marketing effectiveness

The correct answer is: Operating, investing and financing

The statement of cash flows primarily documents the cash inflows and outflows of a business across three main categories: operating, investing, and financing activities. Operating activities include the cash transactions related to the core business operations, such as cash received from sales of goods and services or cash paid to suppliers and employees. This category illustrates how much cash is generated or used through normal business operations, providing insight into the company’s ability to generate cash through its activities. Investing activities encompass cash transactions for the acquisition and sale of physical and intangible assets. This could involve cash spent on purchasing new equipment or property, or cash received from selling such assets. Understanding investment cash flows informs stakeholders about how the company is investing in its future growth. Financing activities represent cash flows related to financing the company. This includes cash received from issuing equity or taking out loans and cash paid to repay creditors or distribute dividends. These activities reflect how the company finances its operations and growth, offering insight into its capital structure. By documenting these three categories, the statement of cash flows provides a clear picture of the sources and uses of cash, which is essential for assessing the liquidity, flexibility, and overall financial health of the business.