Which changes are deducted when calculating Operating Activities?

When calculating cash flows from operating activities, the focus is primarily on changes in current assets and current liabilities because these items directly relate to the day-to-day operations of a business. A change in current assets is especially significant; an increase in current assets, like accounts receivable or inventory, indicates that cash has been used up, reducing cash flow from operating activities. Conversely, if current assets decrease, it reflects an increase in available cash, thus positively affecting cash flow from operations.

In contrast, changes in long-term assets, cash investments, or cash reserves do not directly impact operating activities since they pertain to investing and financing activities rather than the operational, routine business activities essential to generating revenue and expenses. The operating activities section of the cash flow statement focuses specifically on transactions reflected in income generation and expenses, aligning closely with current asset changes.