 Hello in this lecture we will define operating activities. According to fundamental accounting principles wild 22nd edition the definition of operating activities is activities that involve the production or purchase of merchandise support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need than can be done on a youtube page we also include added resources such as excel practice problems pdf files and more like quickbooks backup files when applicable so once again click the link below for a free month membership to our website and all the content on it and the sale of goods or services to customers including expenditures related to administering the business we will be considering operating activities in the context of the statement of cash flows the operating activity being the first of three parts those three parts being cash flows from operations the operating activities and the cash flows from investing activities and cash flows from financing activities when we think of cash flows from operating activities we're basically taking the income statement in essence and converting that net income in one format or another either the direct method or indirect method to net income on a cash basis or net cash flows from operations the income statement on an accrual basis is generally going to be reporting those operating activities on an accrual basis in accordance with revenue recognition principle and the matching principle we could directly change those from the revenue recognition principle and the matching principle to a cash basis basically taking sales and converting that revenue recognition to cash receipts taking expenses converting that matching principle to cash payments to arrive at net cash flows from operating activities although that's a more intuitive way to look at it the more common way than the direct method as that would be would be the indirect method few reasons for that one would be that we've already calculated net income so we might as well start there and back into those non-cash items two would be that it does give us some description of the differences between net income on an accrual basis net income on a cash basis and three oftentimes the indirect method is required through regulation i even if the direct method is also done therefore the indirect method will be used a lot of the time for that reason important to note that the cash flows from operations and the difference between the direct method and indirect method are only applicable to the cash flow from operations the two methods will be the same for the cash flows from investing activities and the cash flows from the financing activities