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Zooming in a bit by holding down control up on the scroll wheel currently at one two five percent on the zoom in noting that with the cog drop down we're currently in the accountant view as opposed to the business view we'll try to toggle back and forth between the two views so you can get a look at both of them we're then going to be right clicking on the tab up top in order to duplicate it to put reports in as we do every time right clicking the duplicate a tab to duplicate it again back to the tab to the middle going down to the reports on the left hand side picking the balance sheet report as that's thinking tab to the right reports on the left this time the profit and loss the income statement report we're going to be closing the hamburger up top otherwise known as the hamburger change the range up top from oh one oh one two two to twelve thirty one two two tab run it and then back to the tab to the left and close the boogie scrolling up ranging to the change in oh one oh one two two tab twelve thirty one two two tab and run it to refresh it these are the major financial statement reports that's the process that we do every time now we're going to be opening up other reports starting with the other financial statement report of the statement of cash flows and most of these other reports we want to think of as giving more information about one or multiple line items on the balance sheet and the income statement now the statement of cash flows after having said that is a little bit different because it's another basic kind of financial statement report but it's still a report that you kind of think of as being constructed after having constructed the balance sheet and the income statement so let's open it up and then i'll continue discussing it we're going to be right clicking on the tab to the right duplicating that tab so that we can then go down to the reports again and then i'm just going to type in up top to find it that's how i usually find the statement of cash flows statement of cash flows there it is that's the one we want let's change the range up top we're going from oh one oh one two two to twelve thirty one two two and run it there we have it the statement of cash flows now when you're thinking about the financial reports oftentimes we'll list the statement of cash flows as one of the major financial statement reports you got the balance sheet you got the income statement you've got the statement of cash flows the reason we don't open it up every time we do the data input as we do with the balance sheet and the income statement is because you can kind of think of the statement of cash flows if you were to construct this by hand as being constructed after you build the balance sheet and the income statement so in other words if i go back to the balance sheet when we first set up our system we're going to lay down the chart of accounts then we're going to hit the plus button and we're going to enter these journal entries in the format of forums that then create the journal entries these will have an impact on at least two accounts on the balance sheet or the and the income statement and that is going to be keeping us in balance with the double entry accounting system and it's nice to then go to the balance sheet and income statement drill down on the accounts affected to get back to the source document so i would think of these as our major two financial statement reports being constructed directly from the data input then we're going to use this information or the system uses this information to create the statement of cash flows which shows activity what happens over time in a similar fashion as the income statement you'll note on a cash flow type of basis now note that you might be thinking well what if i have my books my balance sheet and my income statement on a cash flow basis is the statement of cash flows redundant not necessarily because even if you're on a cash flow basis then like your small business let's say that's on a cash flow basis and you're doing your books primarily to get your to get your tax returns done at the end of the year or something like that there's still some components that are going to be accrual based so if you have for example fixed assets the tax code even though it might be on a cash based system or you might be recording on a cash based system will force you to put assets on the books and then depreciate them that's an accrual type of thing if you deal with accounts receivable uh then you're going to have that's an accrual account in and of itself you're on an accrual system and so there's going to be differences between cash flow and and an accrual basis and then same with the accounts payable and then if you've got any kind of prepayments then also those are going to be accrual kind of items the reason the accrual system is is required oftentimes if you're publicly traded for example and is considered the go to for reporting purposes and projection purposes is if we go on the income statement it's often easiest to see that if you were to compare multiple periods if i hit the drop down here and say we want to compare like quarters let's say and if i was to run multiple quarters here and do a comparison of these last two quarters uh let's do it this way let's go let's go back to the totals let's run it i'm going to go up here and let's just do let's do one month's let's go 12 uh let's 01 22 to 12 31 22 run it and then i'm doing a comparison to the previous month and do a dollar change on it so i'm going to run it so if i was trying to think how did i do on december versus november then i i would have distorted numbers if i've recorded say a purchase of a building in december for a hundred thousand dollars then there would be a complete distortion of my comparison and it's not really fair to do that uh from one perspective because you'd be saying hey look even though i bought the building in december let's say uh or let's say i bought it in november even if i bought it in november i'm still going to be using it in december and that's the idea of an accrual so we're going to say to be fair to the two months so that i have a comparable amount of data if i buy something that's going to have an impact on multiple periods into the future i want to put it on the books as an asset and then you know depreciate it record the expense when i actually consume it so i have more comparable data now in principle that's a great concept it allows us to have comparisons more accurately but we also want to have a cash flow statement so now i'm i've lost my income statement it's not on a cash flow basis well now i can add on and have the best of both worlds in essence a statement of cash flows but the statement of cash flows is a little bit tricky because now i'm going to have to kind of take what i did on an accrual basis and basically adjust it to a cash flow basis so that's kind of the general idea so let's look at the categories of the statement of cash flows here i'm going to collapse everything inside as we done with our other reports just to get a feel for what we're doing here we can see there's three main categories operating investing financing then you got the nest net cash increase for the period and the cash at the end of the period that 4063 52 should tie out to what's on the balance sheet at the end of the period so if i go back on over here you got to pull up the trusty calculator because if there's something in undeposited funds then you got to pick that up so here we've got cash of 201 plus you've got the undeposited funds here plus the 2062.52 there's the 4063 52 which ties out to the statement of cash flows so in that sense you can say okay the statement of cash flow kind of ties into the cash it's giving you more detail on the cash balance but that's really way too simplified a thought process because it's kind of like a bank reconciliation in that we're not just looking at the cash balance by checking the transactions on a cash flow basis we're basically looking at the whole you know accounting system on a cash flow basis type of system so you can kind of think of it as if you went to the balance sheet over here and we think of the income statement as basically a breakout of the equity section which is assets minus liabilities now we're kind of reversing everything and we're kind of breaking out in accordance with the cash flow accounts to see the detail how we got to the current position in cash flow beginning balance cash flow what happened during the period may mainly income statement activities but on a cashed basis to get us to the uh ending point that we are at okay so back to the statement of cash flow so we've got these three major categories of the statement of cash flows the operating activities is by far typically the largest category that we have and you can think of it kind of like the income statement our operating activities type of thing on a cash flow basis although most of the time we use what we call an indirect method reconciling net income on the income statement to net income on the statement of cash flows or operating activities then we have financing activities which typically deals with the purchase of fixed assets because that's that's i'm sorry investing activities which typically has to do with the purchase of fixed assets and then we've got the financing activities which typically has to do how we're going to finance the business which might include the owner putting money into the business or taking out loans paying off loans paying dividends or uh owner's equity so these are the cash flow uh areas if i open them up like i say operating is typically the largest cash flow item notice if you were to think about it intuitively you would probably say okay if i'm going to make a statement of cash flows and the reason for this is because the income statement is on and accrual basis so that i have this nice comparison on the income statement then i'm just going to take each line item on the income statement and record it on a cashed based system and that will convert it to a cashed based system that would be the the simplest thing to think about or the easiest way to visualize what you would do in other words instead of recording revenue when for example i enter an invoice because i didn't get cash on an invoice i wait until i receive the payment and instead of entering an expense when i enter a bill i wait until the bill is paid and then i just run my income statement on that basis kind of eliminating the cash items now you could do that and that would be an operating activity in essence statement but it would be under a direct method and most statement of cash flows are actually going to use what's called the indirect method even though the direct method is more intuitive in that we're going to start with the in balance net income so net income if i go back on over here and i say this goes from 010122 and run it net income down below is the 164246 so there is that and then we're going to have all of our adjustments reversing out the accrual components to get to in essence the net income on a cash flow basis or net cash is prop net cash provided by operating activities so so this kind of confuses people when they first look at it because like i say we're we're backing into it instead of starting from the top down going from income minus expenses on a direct method why would we do that because it's kind of possible you would think quickbooks could kind of put together the operating section on a direct method however most of the time for reporting purposes for like generally accepted accounting principles they actually like the indirect method better because it gives you a reconciliation so if i was just to to recreate the income statement top down i don't get this nice reconciliation of net income that ties out there's the differences that get me to the cash flow provided by operating activities therefore many times regulations that allow that direct method also still want the indirect method and therefore the default is just to use the indirect method where you have this nice reconciliation now the funny thing about the indirect method is that you kind of back into this area because notice that what we're getting here to is net income in essence on a cash flow statement on a cash flow basis so you would think that you would just be looking at the income statement to do that but what we're ending up doing to back into that is we're going to the balance sheet and we're looking at the difference between the prior period and the current period so i can take another difference one here and say let's make this compared to the previous period and dollar change right we're looking at we're looking at the difference because if if this is where i stand let's look at the accounts receivable for example if this is where i stand as of right now and i subtract it out of what happened in the prior period which was zero in this case this is this is the change between those two and because this is an accrual account doesn't have cash related to it i can kind of back into what what what was the non-cash transaction impact on the income statement because the other side of accounts receivable when we record an invoice is revenue so we're going to kind of back into uh the the reversal of the non-cash items by looking at the differences in all of the balance sheet accounts and that that becomes quite complex to actually think about so we actually have a course on building the statement of cash flows and if you can construct a statement of cash flows then that actually gives you a much better understanding of the accrual concepts in general so highly recommend doing that it's a good practice notice that all of these accounts the other side of them have an impact on the income statement so accounts receivable invoice form typically impacts it the other side of it is revenue inventory typically when you sell inventory the other side is cost to good sold on the income statement accounts payable typically the other side of accounts payable balance sheet account is an income statement account of an expense at least you know master card is going to be a credit card we're usually buying an expense amazon revenue pay this is another payable so other side often expense board of equalization other sides and expense and notice they have the loan payable up here which is kind of interesting because you would think that possibly the loan payable would be under the financing activities right because a loan would typically be a financing type of activity so also just realized that although quickbooks gets to something that is in balance here ties out to the to the to the balance sheet it may not always be perfect because if you have complex transactions such as you're purchasing something like property planting equipment on account you're financing it then quickbooks may not be able to categorize properly what's going on and and so it gives you a pretty good statement of cash flows but it might not be perfect and you might have to if you were to do external reporting do some adjustments to it but in any case then you've got the so so then you've got the investing activities so normally these are going to be like things that have to do with the the purchase of equipment or the sale of equipment property planting equipment a balance sheet account activity and you can kind of tell it would be not under the operating which is the default that most stuff goes into notice we're now going down to a balance sheet account again but the the key here is the others we're not putting it into the operating activity because the the other side isn't an income statement account necessarily when we buy equipment we pay cash and then the other side goes to if we paid cash if we financed it it gets more complicated but if we paid cash then the other side goes to a balance sheet account that's why it's not up here in the operating activities why is it called investing because you would think it would just be stocks and bonds maybe but investing here is a more broader sense of investing we are investing in the fixed assets because we're putting our capital into the fixed assets in order to generate revenue in the future that's so that's in that sense it's in the investing activities and then we've got the financing activities which once again you would kind of think the loan payable would possibly be in this is the the activities that also don't typically have the other side as an impact on the income statement therefore not in the operating activities so you put them down here in the financing activities which would typically be things like taking out loans you take out a loan to finance the purchase of the assets that's and then you also could have financing activities for paying off the loans and then you could have financing activities for the owner putting money in if it was a sole proprietorship an owner investment and from the owner taking the money out if it was a sole proprietorship a draw if it was a corporation when the when the they put money in that would be the issuance of capital stock and when they take the money out it would be a dividend so that would be the financing activities and then if we take those three changes we've got the 1896.02 minus the 13495 plus the 1566.5 that gives us our change here a 4063 our change in cash and if I go back to the balance sheet there's there's nothing in the prior period so the change in cash is just the whatever the change right here which would be the 22001 plus and then we'd go undeposited funds plus the 2658 points no that's not the undeposited funds hold on a sec back back back 2062.52 that's the 4063 so there's you know the change and obviously that there's the ending balance because there wasn't anything in the prior period and that should tie out of course to the ending balance and that's how it kind of neatly fits in to tying into the balance sheet so that's the general idea also just note from a technical standpoint here oftentimes there's kind of an issue with these with these names like so it says total adjustments or right here it says net cash provided by and you could say well what if this was a negative number notice down here it says net cash provided by that's a little bit wrong because notice it wasn't provided by it went down so it would have to be used in that's one of the issues with a statement of cash flow you can use a generic term here like net cash change you know by in investing activities but usually they let they like to use the term provided by or used in or something like that which means you got to actually change the words and that's something that QuickBooks doesn't always do here if you want to get you know picky on it and it's net cash so you got to provided by kind of terminology here and then you got the net cash increase for the period again what if it went down will QuickBooks change this to a decrease I don't think so right I think it's going to always be like that way so you got to kind of be a little careful about the terminology might not be a big deal to you but just to just to point out if you were to get a review by someone in an accounting office they would they like to you know that would be something they would they should point out they like to point it out but they should point it out because it's it's a little bit wonky there and then it's kind of interesting to note that this operating activity you would think that you can go to the income statement and just hit your little button up here to changing it to a cash to based system and you should basically tie out to to an income statement that is on you know basically have the direct method of the statement of cash flows it's not perfect so if I go over here and say run it and I check it out down here then I got a negative one nine oh four twelve and over here I've got one eight six nine six point oh two so there's a little bit of a difference between that but you know you can that's the general idea this operating activity is in essence kind of giving you a cash flow basis as opposed to an accrual basis of kind of like the income statement but it's giving you a reconciliation format you could take your income statement and remember you don't want to use this toggle button to kind of feel like you're running a cash based system because that will be dependent on whether you're using accrual forms meaning are you using an invoice or just recording revenue with a deposit a bank deposit form or a sales receipt are you using a bill form or just recording expenses with the expenses but if you use this properly and you then and you're then thinking okay I know I'm on an accrual system or whatever I've entered my data now I'm just I want to see the difference if I was to switch over to a cash based system which would in essence be kind of like the first section of the statement of cash flows but on a direct method and that can give you an interesting you know look at your at your performance basically on a cash flow system although it's not perfectly tied out to what we have over here on the operating activities possibly because of some of the play between what's on what's on the books up top versus the investing and financing activities but that's that'll give you a general idea so in summary just realize that your major financial statements are the balance sheet and the income statement that's how I would think of it and you're inevitably going to have someone ask you but what about the statement of cash flows it's also a major financial statement and you're going to say yes it is a major financial statement but it's actually kind of constructed from oftentimes the balance sheet and the income statement therefore I'm always going to look at the balance sheet and the income statement first when I'm building my data input to check the impact on the balance sheet and the income statement and then if that's correct then I should be able to construct in essence my statement of cash flow or QuickBooks have it constructed for me from it and also just remember the statement of cash flows constructed from QuickBooks may not be perfect right it reconciles it ties out but if you have complex financing transactions and investing transactions and buying equipment and disposing of equipment oftentimes depreciation is kind of an issue when you buy and sell equipment you might have to get a little bit more detailed to really hone down and get a proper statement of cash flows but QuickBooks gives you a good a good baseline