 In this discussion we will discuss the discussion question of list and describe what is needed to create the statement of cash flows. If we see a discussion question like this and we don't know exactly where to start we may want to discuss what the statement of cash flow is and then how it's constructed. 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 and in doing so we're probably going to be end up listing what we use in order to construct it. So a statement of cash flows is going to be one of the major financial statements including the balance sheet, the income statement, statement of equity, statement of cash flows. So we're going to put the statement of cash flows together. It's going to be a representation that's going to show the change in cash or what the activities are that make up the change in cash from one period to another. So what are we going to need to make the statement of cash flows? Then we're going to need the two time periods. We're going to need at least a cash flow of course or where the cash was the beginning of the time period and where it is at the end. So because that's what we're looking for that change. Now that'll typically be found on the balance sheet. We're going to need the balance sheet from the current year but also the prior year. So we need probably a comparative balance sheet. We need to be a balance sheet from the prior year and the current year so that we can see the differences in the cash account. Now that's going to be our major tool as well because we're really going to oftentimes look at the differences basically in all the balance sheet accounts. So we're kind of backing into the change in cash, the activity in cash by looking at the change in all of the balance sheet accounts. It's going to be a typical method that we will use. So oftentimes we will take that comparative balance sheet possibly make another worksheet from it. So we may need a worksheet then that we're going to put together from the comparative balance sheet. Now the comparative balance sheet is what we need. The worksheet is probably what we're going to make from a comparative balance sheet taking that information and put it into a format that will be most easily used to create the statement of cash flows. That will take us, that will give us the balance sheet items from one period and compare them to another period and then give us a column that will give us the difference between every line item on the balance sheet from one period to the next meaning the change, so we'll have a change column. That's what we're going to use. That's what our worksheet will basically be formatted in order to help with the statement of cash flows. Those are the primary tools we're going to need. Now we also want to have the income statement because the income statement is going to help us to determine many factors within this. So the income statement note is showing us activity on an accrual basis rather than a cash basis. So when we take the change in the balance sheet accounts we're going to try to figure out what the cash basically changes. The income statement gives us some information because it's going to give us that information, the activity that happened on an accrual basis which will be useful as we work through the process as well. Now there's going to be some items that's not going to be enough. The financial statements aren't going to be enough. For this reason, by the way, we typically do the cash flow statement last so we would do the other statements first. The income statement, the balance sheet, the statement of equity then we typically do the statement of cash flow using those prior statements to help with the statement of cash flows. We're also going to need more information and in real life, clearly we would just know where that more information is as we construct the statement of cash flows. For example, if we see that there's a change in equipment we're typically going to say, well, there's a change in equipment that probably means that we purchased or sold equipment but there might be more detail than that. We might have financed the equipment. We might have purchased and sold multiple pieces of equipment. We might have purchased and sold equipment. So the change in equipment, so things that deal with the financing and investing activities are often things that we have to dig deeper in and find more information about because just the change in the balance sheet account isn't enough. Now luckily those types of activities, there's not a lot of them meaning if we look at the detail for the purchase and sale of equipment it's not going to be a whole lot of activity as compared to if we looked at the detail for like a counts receivable or something which is something we do every day. So what do we do in practice then? We would go through the GL account for equipment and see all the activity related to it and then we would go into the individual journal entries for each of those line items and look at the transaction and then figure out what actually happened in terms of a cash flow. So that's what we would do in practice. We would have more information including possibly the GL for certain accounts and then possibly transaction detail journal entries and backup documents so that we could figure out what the journal entry was. That would be the case for something like equipment. Possibly loans are going to be another area where that's typically the case. If a loan changed, there might be a lot of loans that happened. So we need to know, you know, did we pay back the loan? Did we receive a loan? Are there multiple loans in one account? So again, there shouldn't be too much activity because we don't take out a lot of loans. We're not taking out a new loan every day, hopefully. So we can go back and figure that out. So we're going to need that added information. In practice, we would kind of know that we'd have to take a look at the GL and look more deeply into the activity for financing activity changes and investing activity changes. In a book problem, of course, they'll have to give us that added information. They'll give us the comparative balance sheet. They'll typically give us the income statement. And then oftentimes added information, which in practice we would get from a GL, including activities related to financing and investing activity changes.