IAS 7 sorts every receipt and payment into one of three activities. Operating covers the trading itself: money in from customers, money out to suppliers and staff. Investing covers buying and selling long-lived assets and investments. Financing covers dealings with owners and lenders: borrowing, repaying, issuing shares. Cash here includes demand deposits and cash equivalents, meaning short-dated holdings that can be turned into a known sum with little danger of their value shifting.
Deals with no cash in them
Investing and financing deals that involve no cash at all, such as converting a loan into shares, stay off the statement and are disclosed separately.
Direct, indirect and what the reconciliation reveals
Operating cash flow can be shown two ways. The direct method lists the main classes of gross receipts and payments. The indirect method starts from profit and adjusts for items that involved no cash, such as depreciation, and for changes in receivables, inventory and payables. The indirect presentation is the more instructive to read, because the gap between profit and operating cash is the accruals story of the year: a widening gap driven by rising receivables often means sales are being booked faster than customers pay. Analysts then derive free cash flow, the cash left after the investment needed to keep the business running, and CFA Institute's valuation readings separate the flow available to all capital providers from the flow available to shareholders alone. That quantity is what a discounted cash flow model discounts. Movements in working capital connect the profit view to the cash view, and reading them is a core skill in financial analysis and modelling.