 The statement of cash flows is organized into three categories. Operating activities, investing activities, and financing activities. Operating activities are widely considered the most important of the three sections. These activities create revenues and expenses, as well as current assets and liabilities. Investing activities result in the increase and decrease of long-term assets. So sale and purchases of long-term assets are reported in the investing activities section. Financing activities are how investing activity items are financed. This section contains increases and decreases in long-term liabilities and equity. The statement of cash flows can be reported two different ways. The indirect method and the direct method. However, the only difference between the two methods is how the operating activities section is presented. Investing and financing activities are always reported the same way. Here you can see the indirect method. The operating activities section is reported with the indirect method, but investing and financing are completed with the direct method. This is an example of the direct method. Here you can see that operating activities are reported using the direct method, as well as investing and financing are also completed with the direct method. The reason that there are two methods is because the FASB prefers the direct method, but industry, as you can see from the graph on the slide, prefers the indirect method. Mainly, companies prefer the indirect method because it reconciles a cruel accounting net income to cash flows. Since companies' data is already reported with a cruel accounting, the reconciliation is easier, most think. Finally, here is an example of the statement of cash flows. Whether a company chooses the indirect method or the direct method, the result is that the financial statements are exactly the same. One last thing I want to make you aware of. You can see I zoomed in on the end of the statement of cash flows. Notice that the sum of operating, investing, and financing activities equals the net change in cash. This amount should match the cash account balance from the beginning to the end of the period. This is how the statement of cash flows explains what causes the change in cash. The change is caused by increases or decreases in operating, investing, and financing activities.