Cash flow in business organizations (Accounting) - Coursework Example

Cash generated from operating activities informs a business owner how much the company or business generated from its primary business operations, rather than the outlying activities such as borrowing and investing. In a period, this section of the cash flow statement gives a clear picture of how the company’s business activities are generating cash that will benefit both the stakeholders and the shareholders. The cash flow from operating activities gives the amount of cash created and excludes expenses linked to long-term venture on capital items.

Notably, the International Financial Reporting Standards delineate cash flow from operating activities as the revenue created from the business activities. Cash flow from operating activities obtained in a given period includes cash obtained from customers for the sale of goods or services, cash obtained from fees, commissions and royalties, and cash reimbursed against income taxes (Mittal, 2007: 146-151). Additionally, the cash flow from operating activities also includes the cash obtained from the sale of futures and the sale of premiums in the case of an insurance company.

On the other hand, the net profit from operating activities refers to the excess of the cash obtained from operating activities over the costs of operating activities. It is obtained after adjustments have been made to the cash from operating activities. It gives the financial position of the business and shows whether a company can cater for its operating expenses (Mittal, 2007: 154). The net profit from the operating activities is given by the difference between the cash from operating activities and expenses from the operating activities.

Some of the expenses deducted from the cash generated include the accounts payable, cash payments to employees, cash payments to suppliers, rent, insurance, interest payable, and income tax expense. Additionally, non-cash expenses such as