Final answer:
Cash received from ordinary business activities is reported under operating activities in the statement of cash flows, which includes transactions affecting net income, such as sales and expense payments. This section of the statement shows the company's liquidity and financial flexibility by indicating its capability to meet debt obligations and operating expenses through the cash generated.
Step-by-step explanation:
Cash received in the ordinary course of doing business is presented in a statement of cash flows under the category of operating activities.
Operating activities typically include the cash effects of transactions and other events that enter into the determination of net income.
For example, when a company sells goods or provides services, the cash received from these sales is considered an operating activity and is listed as 'cash received from customers' on the statement of cash flows.
Similarly, the cash paid for expenses such as wages, utilities, and inventory is also recorded in the operating activities section.
The key objective of this section is to report the cash effects of transactions that are used to determine operating income.
Further details can be provided in the notes to the financial statements to give users a greater understanding of the company's cash flows.
Additionally, the statement of cash flows is crucial for analyzing the liquidity and financial flexibility of a company. It provides insight into the cash-generating capability of the company, which helps stakeholders understand the company's ability to generate enough cash to meet its debt obligations and fund its operating expenses.