 In this presentation we will continue building our statement of cash flows using the direct method now focusing in on the investing activities. What we've done so far is to create our worksheet from the information on the left including ACOM. Support accounting 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. 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. Parade of balance sheet and an income statement and some added information. This is going to give us this worksheet more of a trial balance format and of course we're looking here at this difference column trying to get to this difference of 61900 by finding a home for all other differences. So in other words if we find a home for all of these differences with all other accounts involved in this worksheet then it'll add up to the 61900 which is the change in cash. So it's just a puzzle we're just going to reformat this thing so it'll work. Alright so here we go we've done this for all of the cash flows from operation operating activities and we've done that and we've kind of color coded where we've gotten these numbers. So we've color coded where those numbers are coming from. Now we're going to go through the cash flows from investing activities. You'll note that we kind of skipped over a few things here. Why did we do that? When we did this with the cash flows on a direct method we can basically go down to the income statement and we picked up all the income statement line items that apply and then looked for the related balance sheet account that would be the offsetting accrual type of account so that we can then convert the income statement to a cash basis. Now we're going to go through and kind of pick up the rest pick up everything else that's a difference here we got to find a home for all these differences. Now the investing activities is one of the most confusing oftentimes because it typically deals with oftentimes selling of property plants and equipment. So in this case we have we have this change in equipment here. So this change in equipment went from 200 to 262 to 50. It's an increase and you would think that that would mean that we would purchase the equipment that looks like a purchase of equipment. So I'm going to go ahead and highlight that. I'm going to make that red. It looks like we purchased equipment. I got to put that somewhere. Now you might think well why wouldn't that go in the operating activities if we purchased equipment and note equipment is always going to go and invest in. You could just memorize that you probably want to think through it a little bit that the thought process I would always give is you know when you think of any of these differences the question is is the major journal entry related to them part of the income statement. If it is then it's going to be the operating activity because the operating activities are going to be kind of like converting the income statement. If it's not then the question is are you dealing with the purchase of an asset a long-term asset and if it is then it's going to be investing because we're investing in the future we're investing in equipment. If there's a difference up here that doesn't have to do with purchasing or selling an asset then it's probably financing because the the whole purpose of it is just to get capital for the running of the business. So in this case we obviously are if we're dealing with equipment the journal entry is to debit equipment and to credit either cash and or a loan. None of those are income statement accounts so it shouldn't be in the operating activities. If we sold the equipment then we debit cash we credit the equipment and and we might have a gain or loss. We also have to take off and debit the accumulated depreciation but so that none of that the main components aren't part of the income statement. In other words the gain or loss will be but the major components aren't are not part of the income statement so that means it's going to be dealing with a purchase or sale of something that we invested in equipment so we're going to be down here in the investing activities. Now the other thing that's confusing about this is obviously if we see this difference this isn't enough information usually to give us the full story. We're going to see this and go hmm it looks like that it increased so I'm going to assume we purchased equipment but that might not be the whole story. We might have purchased multiple pieces of equipment. We might have purchased some equipment and sold some equipment plus this account is going to be tied to the accumulated depreciation account as well and we may have purchased and sold equipment that was financed. We might have loans related to it so the purchase of equipment because it's a big line item is often more complex than just one purchase of equipment so in order to do that in a book problem like this we would go through the detail and say what else did they give us related to the purchase. If we are in practice of course we would just look at the detail of this item in terms of the GL account and say okay what's in the GL account and then we'll look at all the journal entries related to that GL account. We will do that in this problem but not now. What we're going to do now is not get into the detail of this because that'll muddy up the waters. What I want to do is just get to this number first. I want to find a home for all these numbers get to this number and then we can go back and try to get to the detail. So for now we're going to put something in here that's too simplified. It's wrong because it's too simplified because we don't we're not going to look for all the data because if we do if I start pulling up numbers that don't tie out to this number then it's going to mess things up. Why don't I want to dig into it and tie out to it now because that'll make it more complicated here to figure out if we're in balance and I don't have all the other components lined up yet in order to piece out what's happening here in any case. I can't change any other accounts. I don't have anything in the financing which is probably going to be related to it in a loan. So it's better for me just to put this number here somewhere now reconcile and then go back. So what we're going to do then is just look for all other accounts that are going to be related to this equipment account and that there's going to be accumulated depreciation will be related so I'm going to make that red that's part of equipment in essence and then we have the depreciation expense that's going to be related to it. Now these two note that if there was no sale of equipment they should be the same so I can just include those two here and they will cancel each other out. In this case something must have happened they're not the same there must have been a sale or something like that so we're going to net those two things out here in the same account and then we'll compensate for that once we dig down on the journal entry and then we have this loss on sale of equipment again that's part of this it's going to have to net out somehow to this equipment so I'm going to for now I'm going to say that's a kind of a mess there's probably a lot more detail luckily there shouldn't be too many pieces of equipment sold because it's not like looking into the gl of cash where there's going to be a ton of activity we're not buying equipment every day hopefully so it should be fairly easy for us to to figure out a few journal entries and then break that out but for now we're just going to lump that into an account I'm going to call it cash paid for purchase of equipment and we're just going to use the same process we had up here I'm just going to say negative of this minus this minus this minus this and again you can kind of think through why it would all be negative like that to pick up all those I mean obviously here if we purchase the equipment then we were assuming we paid cash even though you know we didn't so it should you would think it would be well we may not have paid all cash we probably financed that's probably part of our our process that we'll have to deal with and we may even have received some equipment and purchased some equipment so there's more detail but it looks like just from this that uh that we purchased equipment and that which that should decrease our cash so we're going to assume for now that we just pay cash for one piece of equipment and leave it at that and we're going to say okay I'm just going to I'm going to have to go back to that but I'm going to leave it there get in balance and then go back and fix it in a systematic way and that's basically all we're going to have at this point in time for the net for the net cash provided by uh or used in in this case investment activities so I'm just going to pull that down right now I'm going to leave a space because I think there uh was a sale and I know there was because we had a loss up in sale so we're going to have another line item once we dig into this which is going to be uh cash received cash received from sale of equipment but we don't know what that is yet we'll we'll work that out so I'm going to sum this up I'm going to sum these two columns up over here we're going to say equals the sum of these two columns and that's what we have now next time we'll go to the cash flows from financing activities and that'll hopefully pick up the remainder