Definitions of Terms

Cash

Cash on hand and demand deposits with banks or other financial institutions.

Cash equivalents

Short-term highly liquid investments that are (1) readily convertible to known amounts of cash, and (2) so near their maturity (original maturity of three months or less) that they present negligible risk of changes in value because of changes in interest rates. Treasury bills, commercial paper, and money market funds are all examples of cash equivalents.

Direct method

A method that derives the net cash provided by or used in operating activities from major components of operating cash receipts and payments.

Financing activities

The transactions that cause changes in the size and composition of an enterprise's capital and borrowings.

Indirect (reconciliation) method

A method that derives the net cash provided by or used in operating activities by adjusting net income (loss) for the effects of transactions of a noncash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with investing or financing activities.

Investing activities

The acquisition and disposal of long-term assets and other investments not included in cash equivalents.

Operating activities

The transactions not classified as financing or investing activities, generally involving producing and delivering goods or providing services.