 In this presentation we will take a look at strategies for thinking about the statement of cash flows and how we will approach the statement of cash flows. When considering the statement of cash flows we typically look at a worksheet or put together a worksheet. Support a counting 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 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 such as this for my comparative balance sheet that giving the balance sheet accounts for the current year and the prior year or the current period and the prior period and then giving us the difference between those accounts. So we have the cash we've got the accounts receivable inventory we're representing this in debits and credits so this is in essence going to be a post closing trial balance one with just the balance sheet accounts the debits represented with positive and the credits represented with negative numbers in this worksheet. So the debits minus the credits equal zero for the current year the prior year and then if we take the difference between all the accounts and we were to add them up then that's going to equal zero as well. This will be the worksheet that we're thinking about now when considering the statement of cash flows we can think about the statement of cash flows in a few different ways we know that this of course is the change in cash this is the time period in the current time period the prior year in this case the prior period the difference between those two is the difference in cash that's the change in cash that's kind of like the bottom line of the statement of cash flows meaning we're really looking for this change in cash we're going to end the statement of cash flows by getting back to this cash at the end of the time period so that it'll tie out to the balance sheet but we're really looking for the activity the change that's what the statement of cash flows is designed to do so to think about that let's go through we could think of the gl and just look at the gl for the cash flow now of course the gl for a cash flow is going to be a lot of activity that's why the cash flow statement is so important because cash is going to be involved in so many activities it's involved in every cycle we deal with cash transactions every day so when we see the gl we know that it's going to be increasing with debits we know that it's going to be decreasing with credits and we know that if we looked at the entire gl for most companies it would be very long be very extensive but we can see all this activity and we can see that we can if we're trying to look at the cash flow one way we can do that is of course to look at the activity within the cash flow statement within the gl and we can think about trying to categorize those that would be one approach to figuring out what is happening within the cash flow we can go through the actual cash flow statement the gl and try to categorize all the activity because we know that this activity of course represents the change here that represents the difference then of what's happening from one period to the next so this will give us our ending balance so we know then that this ending balance is going to equal what's on the balance sheet and we know that if we added up all this activity that's going to give us the change and this is really what we're looking for for the statement of cash flow so when we consider the statement of cash flows you could think of it well you know what's really what we're really getting after here is looking at all the changes in the gl and try to categorize those changes into basic categories in terms of operating investing in financing type of activities so that's one way we can approach this and think about this now we don't typically do it this way when we when we do the cash flow statement because it's too tedious to do that to go through each activity again we'd basically be kind of recreating the entire books on a cash flow basis and so we can think about it this way in theory and then in practice we typically do something a little bit different we kind of back into this information and we do that by noting the accounting equation of assets equal liabilities plus equity and just kind of breaking out the cash component to it so in our worksheet we can see that if this is the change in cash this is the number we're really looking for then we could look at the change in everything else and that'll back into the change in cash in other words we know that the debits equal the credits here so the change in cash is equal to the change in everything else or the change in everything adds up to zero and therefore everything else other than cash the change in everything else other than cash will add up to the change in cash and by doing this we can see a kind of a grouping a little bit more easily rather than looking through every transaction in the gl because there'll be a lot of transactions for example that make up this difference in accounts receivable but we don't need to look at every transaction because they're all pretty much the same we know what happens with accounts receivable it goes up when we make a sale on account and accounts receivable is going to go down when a customer pays off the account so we don't need to look at every single transactions within there as we would do if we saw it in the geo we can kind of group those together and say hmm that difference here and we can take that as a whole and try to think about what's the net that happened in terms of accounts receivable and back into what happened we'll talk more about how to do that on each individual account but just note the theory here of what we're doing is we're backing into the cash flow statement and that may seem confusing at first in theory because if you're looking at the change or the activity in the cash flow you would think you would be looking directly at the gl as we did in the prior slide you'd think we would go to the activity in the gl and try to recategorize them in terms of cash flows in terms of categories operating investing and financing but what we're really going to do typically is use an equation more like this we're going to say here the accounting equation is assets equal liabilities plus equity then we're going to break out cash and say well then we can say well cash plus all other non-cash assets so we're saying this keeping this one alone cash versus all non-cash assets will equal liabilities plus equity and so we're just we're working with this formula to break out cash and by doing that we can look at the cash flow and we can kind of back in to the cash flow so these are the two ways they're kind of the opposite ways we can look at it we can go in we can look at the activity that's happening to cash itself which is a bit of a tedious job in practice although in theory it makes the most sense makes the most sense to say hey we would we want to know what's happening with cash let's look at the gl and recategorize everything that happened in cash but what is more practical in practice is to use the equation and really look at everything else other than cash in these groupings of categories which is what this worksheet will in essence do and by doing that we're kind of back into we're going to back into what the changes in cash are happening so that's how the cash flow statement will typically be working with something more like this using this accounting equation using this worksheet reflecting what this accounting equation is saying