Difference between " ordinary course of business " and " operating activities "

Difference between " ordinary course of business "
and " operating activities "..

asked Feb 21, 2017 in Terminology in Accounts by cute shanaya (18 points) 255 views

1 Answer

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Actually the two terms are used in two different contexts.

Ordinary course of business: This covers the usual transactions, customs and practices of a certain business.  This concept is most used to confirm that the transactions being entered into by a business are genuine

For example a firm has a high demand for its products and sells against advance payment only.  If such a firm allows discount to some party, will it raise some eyebrows?  Such a transaction is not in the ordinary course of business.  In such cases the management needs to investigate such transactions.

Operating Activities: These are the company's core business activities, such as manufacturing, distributing, marketing and selling a product or service. Operating activities should generally provide the majority of a company‚Äôs cash flows. This concept is mainly used to gauge the real profitability of a business.  This is so because sometimes non-operating incomes/expenses have a significant impact on net profit/loss of a firm.  So in such a case we need to segregate the expenses and incomes from non-operating activities.  Normally investing and financing activities are considered non-operating activities.

 

answered Feb 22, 2017 by jbsclasses (3,971 points)
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