## Classification of Cash Flow Activities
Every cash transaction of a business falls into exactly one of three activity categories:
| Category | Core Idea | Linked to (Balance Sheet) |
|---|---|---|
| Operating | Principal revenue-generating activities | P&L items, working capital (trade payables, inventory, trade receivables) |
| Investing | Acquisition and disposal of long-term assets and investments | Fixed Assets side (PPE, Intangibles, long-term investments, loans given) |
| Financing | Changes in owners' capital and borrowings | Liabilities/Equity side (Share capital, debentures, loans taken) |
### Balance Sheet Mapping (Quick Reference)
```
BALANCE SHEET
┌──────────────────────────────────────┐
│ EQUITY & LIABILITIES │ ASSETS │
│ Share Capital →FINAN │ PPE →INVEST │
│ Pref. Shares →FINAN │ Intangibles →INVEST │
│ Debentures →FINAN │ Investments →INVEST │
│ Loans Taken →FINAN │ Loans Given →INVEST │
│ Trade Payables →OPER │ Inventories →OPER │
│ Accrued Exp. →OPER │ Trade Rec. →OPER │
│ │ CCE →(net change) │
│ P&L (Revenue/Expense) → OPERATING │
└──────────────────────────────────────┘
```
### Income and Expense Classification
| Item | Default Classification |
|---|---|
| Business revenue, operating expenses | Operating |
| Interest expense on borrowings | Financing |
| Dividend paid on shares issued | Financing |
| Interest income on loans/investments given | Investing |
| Dividend income from investments | Investing |
> Exception for Financial Institutions (Banks): Interest income, interest expense and dividend income are classified as Operating because these are their principal revenue-generating items.