Operating Activities

Operating activities are the principal revenue-producing activities of a business and the other activities that are not investing or financing. They include selling goods and services, collecting from customers, buying inventory, paying suppliers and employees, paying rent and utilities, and, under US GAAP, paying interest and income taxes. They are one of the three categories into which the statement of cash flows divides a company's cash movements, alongside investing activities and financing activities. The net cash these activities produce is explained in the main entry on cash from operating activities.

Operating activities describe the transactions themselves; cash from operating activities is the total cash they generate in a period, and that entry covers its calculation and analysis in detail. The figure can be prepared using the direct method, which lists cash received from customers and paid to suppliers and staff, or the indirect method, which starts from net income and adjusts for noncash items and changes in working capital. For example, a company with net income of $500,000, depreciation of $120,000 and a $70,000 increase in receivables reports operating cash flow of $550,000. Because operating activities are recorded under the accrual basis of accounting on the income statement, comparing net income with operating cash flow shows how much of a company's profit is turning into cash.