 In this presentation, we will take a look at a basic outline for a statement of cash flows. In order to do this, we first want to give an idea of how the statement of cash flows will be generated so we can think about these components of the statement of cash flows. Support Accounting Instruction by clicking the link below, giving you a free membership to all of the content on our website, broken out by category, further broken out by course, each 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 and where they come from. Typically we will have a worksheet such as this that we will use in order to generate the statement of cash flows. That statement of cash flows having three major components, operating activities, investing activities, and financing activities. Our goal here is going to be to fill out these three components and typically we will use a worksheet such as this on the left. The worksheet is just basically a comparative balance sheet that we have here that we've reformatted from a balance sheet to just a trial balance type format, a debit and credit type format. So you can see that we have our balance sheet accounts and we are in balance by having the debits be positive and the credits be negative or debits minus the credits equaling zero. Given it's an indication that this period, the current period that we are working on is in balance, the prior period, same thing, so we have two points in time for two balance sheet points, the prior year or period, the prior year in this case and the current year. And then we just took the difference between these two columns. And if we have something that's in balance here, the debits minus the credits equal zero, something that's in balance here, the debits minus the credits equal zero and then we take the difference of each line item in these columns and sum up those differences, it too must add up to zero. So in essence, what we're going to do in order to create the statement of cash flows is find a home for all these differences. And that'll give us a cash flow, a concept of the cash flow statement. We'll get into more detail on how to do that when we create the cash flow statement. But as we look at the outline, keep that in mind. So here's going to be the basic outline for the statement of cash flows. We're going to have the operating activities. That's going to include a list of inflows and outflows from the operating activities. And then we're going to have the net cash provided by the operating activities. Now this list of inflows and outflows for the operating activity will be the most extensive list because the operating activities are in relation to, you can think of it as similar to the income statement for an accrual basis. What we're trying to do is get to net cash provided by operating activities, which is kind of like net income on a cash basis. So that means that most of the activities that we do is going to be here because that's normally what the reporting is in terms of activity. That's what the income statement does. It reports activity as opposed to the balance sheet, which reports where we are at a certain point in time. So then we have the other investing activities. Those will include inflows and outflows. There's going to be less involved in the investing activities. And of course those will include investments, like if we were to invest in stocks and bonds or something like that, but they also include investments in assets like fixed assets, like property, plant and equipment. So we just got to be aware of that in the investing activities, property, plant and equipment will be there. Typically going to be less activity that goes on in the investing activities than of course in the operating activities. Then we've got the financing activities. Then we're going to list the inflows and outflows of the financing activities. And those are going to be things that are usually just to get capital in the business or to pay back capital or pay back the owners. So these are going to be things like loans related to loans, taking out a loan or getting money from the owner, whether that be from selling stock in the company issuing stock or if it's a sole proprietorship or partnership, the owner just putting money into the company or paying back money, such as debts or paying back money to the owners like dividends or draws. So those are going to be the three categories we're going to have. When we put the information into these three categories, we got to think about our worksheet that we saw on the prior slide and think, okay, where are each of these activities going to go? Are each of these areas going to be operating, investing or financing? So whenever we think about the cash flow statement, we always want to be thinking operating investing and financing and which area do these whatever cash flows we have fit into. And we'll discuss the thought process on how to do that. We'll put together a cash flow statement in order to help us do that. We have the typical kind of format when we put together a cash flow statement of any kind of statement, whereas we subtotal it on the inner column and then we will we list the accounts in the inner column and then we give a subtotal. So we're going to list out the activity for operating activities and then give the subtotal in the outer column. These two columns are not going to be debit and credit related. It's a financial statement. We don't deal with debits and credits on the financial statement. So plus in mind is financial statement. So these two columns simply deal with this is going to be a list of the subcategory and this is the summary of the subcategory and that's going to be it. And then if we have these outer columns, net cash provided by operating activities, cash provided by investing activities and cash provided, then we will have the financing activities, same concept, listing inflows and outflows of the financing activities and then we'll have the net cash provided or used in the financing activities. So our major goal when we think about the cash flow statement and we have questions about cash flow is usually which of these categories is it going to When we think about a cash flow, is it operating? Is it investing? Is it financing? We will go through a thought process in a later presentation in terms of how can we best determine whether something is operating, investing or financing and note that the default is obviously always going to be operating as our first kind of question. Is it operating? If it's not operating, then is it investing and then is it financing operating having to do with cash flows related to similar transactions as the income statement? So if we're talking about a cash flow that deals with something that would normal be a normal operation, revenue and expenses related, but cash flow related to them, probably operating. Investing activities going to be dealing with the investments in stocks and bonds and things like that, normal types of things we think of as investments, but also having to do with investments in long term fixed assets like property, planting equipment, financing activities having to do with things that we're using to finance the company. We're trying to generate capital money in the company that we can use to run the business or we're paying back capital or money to run the business. So if we're taking out a loan or if we're getting issuing stock or we're getting money from investors or we're paying back a loan, we're paying back the investors with dividends or draws. Once we have this information, you can note that the normal format is similar to any financial statement. We're going to group this information in the inner column. So this is a subcategory of operating activities. We'll list all the operating activities in the inner column and then we'll sum we'll total them up in the outer column. So these two columns do not represent debits and credits like any financial statement. They're not going to show debits and credits because we don't want to have to explain debits and credits to normal readers of the financial statements. So we're going to convert the debits and credits into a plus and minus format. And then we're going to have these two columns be the sub totals. So that means these totals in the outer column then this is going to be net cash provided or used operating activities. Net cash provided or used in investing and net cash provided or used in financing. If we add or subtract those up, whichever way they be going in terms of cash flow, then we're going to get the net cash increase or decrease in cash net increase or decrease in cash. That's going to be these three items here. This is really what we're looking for in the statement of cash plus because this is the activity. This is what happened. We're looking for that change in cash. Cash has changed. How did it change? Well, here's the story of how it changed in terms of these summary stories operating investing in financing. And then here's the more detail in terms of those three categories of what happened, what's going on with this change. But we don't want to just report this cash change because if we did so then readers for the financial statement would have to do some math in order to tie everything out. They'd have to subtract the comparative balance sheet cash on the first period to the next period to see what the change is to make sure that this number ties out to it. And we would like to have something at the bottom of the cash flow statement that readers can tie out easily and say, okay, I see how these two statements are related. So what we'll do is we'll take this change and we'll add to it the cash balance at the prior period end. So we're going to say, here's the difference. Here's what changed. Here's what the cash was at the beginning of the time period, which is the same as the end of the last time period. And then that'll give us cash flow at the end of the period. So then this cash flow then is what will tie out to the balance sheet. So it'll match what's on the balance sheet. So again, this is really what we're looking for. We're looking for the change, the activity, what's going on. But we want to tie it out to the bottom line number on the balance sheet so people have a very easy check. They can just go right to this bottom line number and say, okay, yeah, that matches the balance sheet. It looks like this whole thing ties out. I see where this fits in. If we think about this in relation to our worksheet, which we had basically two time periods, a comparative balance sheet here, current period, prior period, then we can see that this whole activity down here matches up with our activity up top. Remember, we have the current period, information, prior period, the difference. We're really looking for that difference because that's showing the activity that's going to be here. But then we're going to tie it out to our cash at the end of the time period because that's what will be reported on the balance sheet. So we'll get into this worksheet more as we go through. We're really going to be working with this differences column in order to help us determine what the cash flows from operating activities, investing activities, and financing activities will be.