(1) be easily convertible to a known quantity of cash; and
Classification of Cash FlowsBecause cash transactions are merged, transactions between cash and cash equivalents, such as cash spent to acquire cash equivalents and cash received from selling cash equivalents, are not reported on the statement of cash flows. All other cash receipts and payments, on the other hand, are categorized and recorded on the statement as operating, investing, or financing operations. Individual cash receipts and payments for each of these three categories are tagged to indicate the transactions or events that generated them. A net cash inflow (source) happens when a category's receipts exceed its payments. When the payments in a category exceed the revenues, there is a net cash outflow (use).
Generally, investing activities include transactions and events that influence long-term assets, such as the acquisition and sale of long-term assets. They are also include1)) the acquisition and sale of short-term investments in other businesses' securities other than cash equivalents and trading securities, and (2) lending and collecting money for notes payable Exhibit 16.2 shows several instances of cash flows generated by investment operations. Special mention should be made of the proceeds from collecting the main amounts of notes. If the note is the result of client sales, the cash receipts are classified as operating activities, whether short-term or long-term. However, if the note is the outcome of a loan to another party rather than a sale, the cash proceeds from collecting the note principal are classified as an investing activity. The FASB mandates that interest on loans be recorded as an operational activity.