## Operating Activities – AS 3

### Definition

Activities that are the principal revenue-generating activities of the enterprise and other activities that are not investing or financing activities.

Think of it as: everything the business does to run its day-to-day operations.

### Typical Inflows (Operating)

Cash receipts from sale of goods / rendering of services
Cash receipts from royalties, fees, commissions, and other revenue
Cash refunds of income taxes (when attributable to operating income)

### Typical Outflows (Operating)

Cash payments to suppliers for goods and services
Cash payments to employees (salaries, wages)
Cash payments for printing costs, admin overheads, rent
Cash payments / refunds of income taxes relating to operating activities

### Sector Examples

Entity	Inflow Examples	Outflow Examples
School/College	Fees received	Employee salary, printing cost
Manufacturer	Sale revenue	Raw material, labour
Retailer	Cash sales	Purchase payments

### Balance Sheet Mapping

Operating activities link to current assets/liabilities on the balance sheet:

Trade Receivables, Inventories, Trade Payables, Outstanding Expenses, Prepaid Expenses → all affect operating cash flow.

Worked example

### Example 1

A school collects ₹5,00,000 fees, pays ₹2,00,000 salaries, ₹30,000 printing costs, ₹50,000 admin overhead.

Cash Flow from Operating Activities:

Fees received +5,00,000

Salaries paid −2,00,000

Printing cost paid −30,000

Admin overhead paid −50,000

──────────────────────────────────────

Net Operating Cash Flow +2,20,000

⚠️ Common exam mistakes

Classifying employee loans as operating — loans given to employees are operating cash flows (not investing), but interest earned on those loans is also operating for all entities.
Forgetting that trade payable and outstanding expense adjustments affect operating cash flow in the indirect method.
Mixing up operating income tax with investing/financing — if question only says 'income tax paid' without specifying, treat it as operating.

Reference:

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Operating Activities – Classification and Examples

Worked example

⚠️ Common exam mistakes