 Hello and welcome to the session in which you would look at an important topic, the statement of cash flows. This topic is covered on the CPA exam as well as intermediate accounting, financial accounting, advanced accounting, not for profit accounting. It's very important to have a strong understanding of the statement of cash flows. Cash flow statement is quite challenging for many reasons. One is you need to rely on prior knowledge. So the statement of cash flows is derived from the balance sheet and it's derived from the income statement as well as your knowledge of other accounting information. What does that mean? It means you have to have a good understanding of your balance sheet. You have to have a good understanding of your income statement and you have to have a good understanding of your accrual accounting. Because the statement of cash flow is basically taking your accrual accounting, which you should have a good understanding of and turning everything into cash. So if you don't have a strong understanding of accrual accounting and the financial statements, you will find a hard time understanding the balance sheet. That's the bad news. The good news is in this session, I would assume you don't know anything. And I'm going to start from that assumption and I'm going to explain everything from scratch. I'm going to use a simple example to illustrate the concept. So whether you are an accounting student or a CPA candidate, I strongly suggest you take a look at my website, farhatlectures.com. I don't replace your CPA review course, whatever the CPA review course happens to be. I'm a useful addition to your CPA review course. I provide alternative explanation, more detailed examples. I explained the concept behind the theory relative or in comparison to the CPA review course where they review the material assuming you know all of this. Your risk with me is one month of subscription. Your potential gain is passing the exam. Take a look at my website to find out how well or not well your university doing on the CPA exam. My courses are aligned with your Baker, Roger, Wiley and Gleam. So it's very easy to follow back and forth. I do have accounting courses such as intermediate accounting, auditing as well as advanced and governmental. I also have all the previously AI CPA released questions with detailed solution. I would suggest you take a look at my website to find out how I can help you pass the exam. Connect with me on LinkedIn. If you haven't done so, take a look at my LinkedIn recommendation, like this recording, share it with other connect with me on Instagram, Facebook, Twitter and Reddit. So the first thing is we're going to discuss is the purpose. Why do we have the statement of cash flows? Well, it provides information about cash inflows and cash outflows, which is cash receipts, where the cash is coming from and where are we spending our cash. Basically, it explained the changes in cash. Now, who's interested in this information, practically anyone, creditors, investors, suppliers, the government, anyone will be interested in your cash flow. It provides information for the following questions. What was our cash sources? So where did the cash came from? It's going to explain that. Where did the cash go? Where did we consume that cash? And that's powerful information for anyone who's interested in learning about the company. It explained the changes in cash. So from a grand perspective, from a large perspective, the statement of cash flow consists of three sections. And this is what we're going to be discussing today, starting to kind of familiarize ourselves how to build those three sections. The first one is the operating section. And think of the word operating. Operating means we're operating the business. When we operate the business, we generate revenues and we incur expenses. So simply put, in the operating section of the statement of cash flow, which we'll see shortly, we're going to be converting net income, which is remember, net income is a cruel net income into what we called cash net income. So we're going to take a look at our, we're going to take a look at our operation from a cash flow perspective from a cash perspective, rather than an accrual perspective. So when we are dealing with the operating activities, we are dealing with the income statement and any related balance sheet account that affect the income statements, which we'll see what they are. The second section is investing section. And from the word investing, it's mean we are investing in something. What do companies invest in? What can you invest in? Well, you can invest in stocks and bonds of other companies. So you can purchase investments. What are those investments? Stocks, bonds of other companies. Or you could also invest in yourself and purchase property, plant and equipment. When you buy more vehicles, more warehouses, you expand your business, you are investing in yourself. So the investing activities deals with your long term assets. So when you are dealing with the investing activities, you are dealing with things such as property, plant and equipment and long term investments mainly. So this section is going to explain the changes in your investments from a cash flow perspective. You're going to have purchases of these investments and you're going to have sales of these investments. So any changes in this, in these accounts, they will appear in this section. Don't worry, we're going to look at an example. Part three of the statement of cash flows is the financing activities and simply put, how do you finance yourself? How do companies finance themselves? They finance themselves themselves through their own stocks and bonds. It explained, this section will explain how the company financed itself. How do you finance itself? You issue stocks to bring money. You issue bonds. You borrow money. And at the same time, you might also pay back the loans, pay back the bond, reacquire some of your stocks. So those are the three sections of the statement of cash flows, which you have to have a good understanding. First, you have to know what each section represent from a large perspective. And this is what we're talking about here. Then we're going to prepare each one separately. So we're going to have cash flow from operating, cash flow from investing, cash flow from financing. We're going to net them out. Then we're going to take this net amount, add it to the beginning of the year and that's going to give us the cash at the end of the year. And we're going to see, don't worry, we're going to see an example, but this is the overall picture. Those are the three sections. So this section you might have, for example, just to use some numbers so this way you are not too confused. For example, we brought $10 from operating, from operating the business on cash flow, on cash flow. Don't worry how these numbers are coming from. So this is plus then we're going to see how we compute them. We spent $6 on investing in the business and we brought money from financing activities of $3. So $10 minus $4, $10 minus $6 equal to $4 plus $3 equal to $7. So overall the cash increase by $7 at the beginning of the year we started with $2 in cash. Our cash end year should be $9. And I hope I didn't make any mathematical mistake. I don't think I, I think I did. That's $4. Now I think it's good. So $9. Now let's take a look from another pictorial. Like I just want to show you another way what we're talking about here. Okay. We said operating activities is one of these activities. Under operating activities we're going to have cash coming in. So we're going to have cash coming in, inflow of cash from the operating activities. Where do cash come from when we're operating the business? Well, the main one is cash received from customers. That's the big one. We might have investment in other companies generate dividend revenue. We might have interest revenue. We might have rent revenue, but usually cash coming from customers. Also to operate the business, you are going to incur expenses. Well, you're going to incur a lot of different type of expenses and those will be, those are going to consume cash. Those are going to consume cash. So if cash is coming in, then we're going to spend some cash here. This is like negative cash. We're going to spend money on our cost of goods sold to buy the product. We're going to spend money on salaries. We're going to spend money on taxes. We're going to spend money on various type of operating expenses. So notice the operating section will have a positive and will have a negative. And hopefully what we want is we want net positive if we can. In other words, we want to be bringing more cash than spending cash on operating the business. And that's extremely important because you don't want to operate the business and generate cash losses. I mean, some companies do that for a long period of time. Take a company like Amazon. Amazon for a long period of time for almost a decade were losing money, but their purpose was to expand. And so if they're losing money, how did they survive? Well, we're going to see how did they survive. Same thing with Tesla. For a long period of time, they were not making any profit from their operation. And how did they survive? We will see how investing. This is the second section. Remember, investing, we said, is when we sell property, plant and equipment, when we buy property, plant and equipment. I'm sorry, when we sell property, plant and equipment, when we sell investments such stocks and bonds that we own and when we collect money. Actually, with the investing, it's better to start with the inflow outflow of cash. So before you sell an investment, you have to buy it. So investing will also spend money. So if we have cash, we might spend cash on investments when we purchase property, plant and equipment. So we might purchase property. We might. That's what companies do. They purchase property, plant and equipment. They purchase investments. And this is going to consume cash. They're going to buy stocks and bonds and they also they are going to lend money as part of their investments. The flip of it, sometime they are going to sell. That's going to bring cash to the business. They're going to sell their property, plant and equipment. They're going to sell their investments. That's going to bring cash to the business. And they're going to collect the loan that they lent out. That's going to bring cash to the business. Okay. So notice investing. Sometime it's going to bring cash. Sometime it's going to consume cash. We net them out. Find out for the particular period whether we spent money on investing or we or we consume money on investing. Now, generally speaking, generally speaking, we want to be investing. We want this number. We want the overall to be negative. In other words, we want to be investing in the business, not selling our property, plant and equipment. But that's the general rule. The third category is financing. How do we finance ourselves? Well, we're going to have two, two sections. One that's going to bring money and that's when I consume money while we issue stocks. Every time we issue stocks, we bring cash to the business. Every time we issue bonds, we bring cash to the business. Every time we borrow money, we bring cash to the business. And that's part of the financing activities. Also the financing activities will have a flip side. What is that flip side is? Sometime we're going to buy back our own stocks. That's going to consume cash. We're going to pay dividend to the shareholders. That's going to consume cash. So notice they are related to these financing activities and we're going to redeem the bond. We're going to pay back the bond. We're going to pay back the debt that's going to consume cash. So notice this is how things are going. We have cash coming in from operating investing and financing and we have cash consumed by operating investing and financing. So this is the big picture. The question is how do we actually prepare a statement of cash flow? Once you understand it, once you understand the big picture, we can start to do so. What do we need? What is needed is comparative balance sheet. Simply put, comparative means two years. We need the current year and the prior year. And you will see why we need the current income statement. And we might need additional information about transactions as necessary. The best way to illustrate this is to start with a simple example. This is a simple example. Don't worry. I have many examples that are more complicated than this, but it's very important that you start with a simple one. On January 1st, Adam Consulting Company started its operation. So this is a new business. The company issued 60,000 shares for $1 par value and they received 60,000 in cash. So they invested in the company 60,000. The company incurred operating expenses such as rent, utilities and taxes. And the company purchased a land for 15,000. That's fun. This is just basically small information about the company. When you have a cash flow problem, read everything that you are giving upfront. Now this is a simple example. You'll see we're going to be working more advanced examples. So let's take a look at the balance sheet, the comparative balance sheet. Notice the comparative balance sheet in this example. Again, I'm trying to keep this simple, but although it's simple, it's powerful. It applies to everything. The comparative balance sheet, the prior year, everything was zero. Why everything was zero? Because this company started this year. So when we started January 1st, or December 31st, X4, the prior year, we did the company that not exist. So notice cash is zero, account receivable is zero, land is zero, accounts payable, common stock and retained earnings. And this makes sense because the company did not exist. Now if the company exists, we will have numbers in there. It's not a big deal. Then we need this year balance sheet. And this year balance sheet is at the end of the year, we have 41,000 in cash, account receivable of 61, land of 15,000, total of 117, accounts payable of 12, common stock of 60, retained earnings of 45. The first thing we need to do is we need to figure out the changes. So figure out the changes between the balances. Notice we notice that cash, actually they all increase because we're starting with zero cash increase, account receivable increase by 61,000, land increase by 15. But basically the whole purpose of the statement of cash flow, the whole purpose of it, I'm going to tell you what, is to explain how the 41,000 happened, how did that change in cash occur. Our accounts payable went up 12,000, our common stock went up 60,000, our retained earnings went up 45,000. The next thing we need, so we have the comparative balance sheet, we need the current income statement, and this is the income statement for Adam Company, revenues of 192,000, operating expenses of 120, income before taxes 72, income tax 13, net income is 59,000. And keep in this example simple, the only additional, the additional information that we are giving is the company paid dividend from the profit. And I'm not even giving you that dividend number, because I'm going to show you how to figure out the dividend. Although this example is simple, I'm going to throw tricks here and there, till I prepare you for more advanced examples. This is the information that we are giving, and you're going to see this information on the next slide as we start to prepare the statement of cash flows. Remember, we have three sections of the statement of cash flows. The first one we're going to prepare is the operating section. Now, I'm going to be using the indirect method to illustrate this concept. We have the direct method and the indirect method. I have a separate recording for the direct method, if that's what you want. Under the indirect method, there are five steps in preparing the statement of cash flows. I'm going to list the steps now, and I'm going to explain them. I may not use all of them. I'm not going to use all of them in this recording, but you will need to know all of them in order to be competent. First, you will start with net income. That's pretty simple. It will be on the income statement, or you can derive it from the information giving. Then we are going to add non-cash expenses such as depreciation and debt expense to net income. What does that mean? It means when you start with net income, how do you start with net income? Net income is computed by taking, well, let's take a look at net income. For example, net income is here. Now, before you get to net income, you're going to have expenses. You're going to have all sorts of expenses, and I just put everything in operating expenses. But if any of these operating expenses would include depreciation or debt expense or amortization, why did I choose those three? Well, let me tell you why I chose those three, because those are considered non-cash expenses. What do I mean by this? When you debit depreciation expense for 10,000, what do you credit? You would credit accumulated depreciation 10,000. What do I mean by this? It means you recorded an expense, and you credited something other than cash, non-cash. This is called the non-cash expense. So what you do is you add back those non-cash expenses to net income, because the purpose of the operating activities is to convert net income into cash net income. So the expense reduced your income without reducing your cash. Therefore, you have to add it back. You have to add it back. So that's why we add those non-cash expenses. The same concept applies to the debt expense. You debit debt expense, you credit allowance. You debit amortization expense, you credit accumulated amortization. So notice these are non-cash expenses. Again, we will not use it in this example, but I want you to understand why we do that. Then we add any losses. Well, that's another concept very similar to number two. What are losses? Well, you need to know that losses are from the sale of assets and you sell them less than their book value. So you sold something. Let's assume you have a land. You paid for the land 100,000. Then you sold the land for 80,000. What does that mean? It means you have a loss of 20,000. Let's book this entry. You debit cash 80,000, you debit a loss 20,000, and you credit the land 100,000. So what happened is this? You debited a loss. A loss just like those number two items, non-cash expenses. The losses reduced your net income by 20,000. But did the loss actually reduce your cash by 20,000? No. On the contrary, actually, you received cash. So notice here, you received cash. Cash went up. So what do we account for this cash? Well, we're going to account for this cash in a different section, in the investing section, because we sold a piece of land. Therefore, if we incur any loss, loss is considered a non-cash loss. It's treated like a non-cash expense. It reduced your income without reducing your cash. And that's why we add the loss back. Giving the same example, let's assume we sold this land for 120,000. So now we have a gain. What do we do with gains? We're going to deduct the gains. Why? Because let's take a look at the journal entry. If we sold that land for a gain, we're going to debit cash 120,000. We're going to credit the land 100,000, and we're going to credit the gain 20,000. Now what did that gain do? That gain goes on the income statement. It increased our net income by 20,000. That's fine. But did it really increase our operating cash? Not at all. Why? Because this 120,000, it's going to be part of our investing. So the gain, the entry of the gain increased net income without increasing our cash operation. Now it doesn't mean we're going to ignore the cash. We're going to account the cash somewhere else, but we need to back out that gain from operating. And by the way, selling your land is not part of your operating your business. Therefore, the gain should be backed out. The cash from the gain should not be accounted for in there. Same thing with selling the land at a loss. Selling the land is not part of your operating expenses. Therefore, it has to be taken out. It has to be taken out. It doesn't mean we ignore the cash, the 80,000 or the 100,000. It's accounted for somewhere else. Again, in this session, I will not use this and this or this. Just keep it simple. I'm going to, the fifth step is analyzing current assets and liabilities, and I will focus on this in this example. So it's very important to understand step five. What we do now is we analyze current assets and current liabilities, and why do we do that? Well, the reason we analyze current assets and current liabilities is because when we compute net income, a cruel net income, net income will involve sales. Well, sales comes from some of it from account receivable. We're going to compute, we have cost of goods sold. This comes from accounts payable and comes from inventory. If we look at our expenses, operating expenses, our operating expenses are part of our accrued expenses, which is accrued liabilities. So what I'm trying to say is the net income, the figures that goes into net income also affect current assets and current liabilities. So that's why we need to analyze our current assets and current liabilities, and we're going to illustrate this in a moment. So to take a look again at the big picture, we are focusing on this section, the operating section. Again, let's take a look at the numbers that we are giving. And this is what we are giving about this company. Let's start with step one. What does step one read? Step one says start with net income. Excellent. I'm going to start with my net income. So I'm going to start to prepare the statement of cash flow. My net income is 59,000, basically coming from the income statement. Easy. Step two, add any non-cash expenses. I look at my income statement. I don't have any non-cash expenses. If I had any, I would have added them now. Add any losses. I look at my income statement. I have no losses. I did not sell any property, plant and equipment or investment at a loss. So I don't have to worry about losses. I deduct any gain. I look at my income statement. I don't have any gains. Basically, I'm done with this step. Then it says analyze current assets and current liabilities, other than cash, obviously, because you don't analyze the cash. Okay? The cash, you don't analyze it because that's what you're trying to explain. Let's take a look at our account receivable. And this is what analysis means. You have an account receivable. It's an asset. It started with a zero balance. It went up to 61. You've already computed that the change is 61,000. It means your account receivable increased by 61,000. Well, what does that mean? What does it mean that overall your account receivable during the year increased by 61,000? Right? It went from zero to 61,000. It means you sold more on account than you collected. Well, let's look at it that way. Every time you made the sale on account, you debited account receivable, you credited sales. And every time you collected cash, you debited cash from the customers and you credited account receivable. What we are seeing is this. For the whole company, when we net those out, we made a lot of sales on account. We made a lot of collection on account. But the net was we made more sales on account. Why? Because account receivable went up by 61,000. What does that mean? It means in this number right here, in this 192,000, in this number here, you have 61,000 in sales that are on account. What does that mean? It means in net income here, in this number, 59,000 net income, you have 60,000 that's not cash. Why? Because my account receivable overall went up. Well, if that's the case, I need to back out any sales on credit. So what do I need to do? If account receivable went up, I will deduct the net increase. I will deduct the net increase. So notice here, I'm going to deduct 61,000. I'm going to start with 59 and deduct 61,000 from that. Why did I deduct that 61,000? Because the overall account receivable went up. Now, if the opposite was true, if the overall account receivable went down, which is, it can't go down in this example, because I started at zero, but let's assume I started with, I started with 100,000 and I end up with 40. It means my account receivable went down by 60. I will do the opposite. If my account receivable went down, it means I'm collecting more cash this year than I sold on account. It means there are cash that I need to account for that's considered part of my operating activities because my account receivable went down. So simply put, if your account receivable goes down, it's a positive to the cash flow statement of cash flow. If your account receivable went up, it's a negative to the statement of cash flow. Actually, I'm going to generalize this statement. This statement applied to all current assets. When current assets go up, other than cash, it's, it's a, when the current asset goes up, it's a negative to statement of cash flow. It means you are consuming cash. Think about inventory. If you have more inventory, it means you are, if you started the year with 10,000 of inventory and you end up the year with 15, you have more inventory. Well, you must be buying inventory. Therefore, it's a negative cash flow and the opposite is true. If you started with 10 and went down to two, it means your inventory went down by eight. It means you sold the inventory. Think about prepaid. If your prepaid went up, well, how would your prepaid went up? You have to pay. You have to buy them. Therefore, you consume cash. If your prepaid went up, it's a negative statement of cash flow. If your prepaid went down, it's a positive statement of cash flow. Simply put, as I told you, you have to know the rules for all current assets. The rules are simple because they apply to all current, actually to all assets, not only current assets. So when current assets goes up, you are consuming cash. When your current assets went down, you are bringing cash in. And we'll see what, what do I mean by that? Okay. By bringing cash in. But this is what you need to know. So now we deduct 61,000. Now we need to analyze current liabilities. Well, let's look at our current liabilities. We only happen to have one, which is easy. And it went up. That's easy to it. We had zero accounts payable. Now we have 12,000 of accounts payable. What does that mean? Well, think about it. What does it mean you have accounts payable? It means you purchase stuff, goods and product on account. That's why your accounts payable go up. You buy stuff. And when you buy and you don't pay for it, it means part of your operating expenses there are 12,000 in there of your operating expenses. You did not pay for it and happens to be 10% of your operating expenses. Okay. So simply put, 12,000 of your operating expenses, you did not pay for it. How did I know you did not pay for it? Well, your accounts payable went up. Well, what does that mean? It means I need to add 12,000 to my 59,000 to my net income. Therefore, if my accounts payable went up, it's a positive to cash. Let's think about the opposite scenario. Let's assume your accounts payable has a liability. Let's assume your accounts payable. Now we're going to change the example. Your accounts payable, you started with 12,000 for a particular year. Then you went down to 8,000. Well, your accounts payable went down by 4,000. Right? It started at 12 and up to be 8. Well, when does your accounts payable go down? Well, it goes down when I pay cash. And think about it. When I pay cash, I debit accounts payable and I credit cash of 4,000. Okay? So I'm spending money, but that money, it's not reducing my net income. Why? Because when I debit accounts payable, credit cash, they're not affecting my net income. But my accounts payable went down. If my accounts payable went down, it means I am consuming cash. Therefore, we can generalize for all liabilities. This is for all liabilities. I'm going to put it in a different color because it's very important to understand how we analyze those accounts. For current liabilities, let me go back. For current liabilities, when your liabilities goes up, let's keep skipping. Okay? And let me change the color. There we go. When your current liabilities goes up, it's a positive to the statement of cash flow. It means you are using that to finance your operation. And when your current liabilities goes down, it means you are paying off your liabilities. Your cash flow goes down. So let's come back here. Now we are done with the operating section. We happen to have only one current asset, one current liabilities. If we have one, two, or 200, they're all treated the same way. They're all treated the same way. So we thought we said income, 59,000. Increase in account receivable reduced it to actually negative. Then account spable brought us up to positive cash. Simply put, although we are making 59,000 in net income, we should not be too happy. Because of that 59,000, only we are converting 10,000 of it only in cash. Now we want to convert the cash later on when we get paid hopefully next year. Customers will start to pay us. But the point is we have to be very concerned. It seems we are selling a lot on credit. Just FYI is an observation. But from a cash flow perspective, we are generating cash not much compared to net income, but hopefully we will collect the account receivable. So that's all we can say. So the operating section, what it did, it showed us from a cash flow perspective whether we are generating cash or we are consuming cash to operate the business. And it happens to be positive. And this is the first section of the statement of cash flows. Again, we did not have any gain, loss or non-cash expense to deal with. And the reason I did this, because I want you to focus on this aspect, we will work the others in a separate example. The second section is, so we are done with operating. We're going to look at investing. We're going to look at investing. And under investing, we have some stuff that will bring us money, some stuff that will consume money. Okay, investing. Let's take a look at what we have in this example. What we have for this example is the only thing that we have is land for we don't have anything other than land. We could have land. We could have investments. And it could get a little bit more complicated later on, but don't worry for now. All what we do is we're dealing with land. So what we do is this. We see that our land account went from 0 to 15,000. What did I tell you about assets? When we have more assets, it means we are consuming cash. Okay, because we are not told. We could be told that this land, we issued stocks for this land or we issued a bond to buy it. That's a different story, but we're not told this. If we're not told otherwise, if our land account went from 0 to 15,000 and we are not told anything else, it went up by 15,000, it means we paid for that land. What does that mean? It means we consume 15,000 off cash. Therefore, what we can say is cash flow from investing, we purchased a land and it consumed 15,000. And that's the only section. That's the only account that we have for this. So this is the first part of the statement of cash flow. This is the second part. Now we could have in this section investments. We could buy land. We could sell building. We could be buying warehouses, buying stocks and other companies, buying bonds and other companies. It doesn't really matter. We just have to analyze them and we would look at examples later on when we do this. So this is the second section. Guess what? What we're left with is the... So we're done with investing. We're done with operating. What we left is the financing section. In the financing section, we need to take a look at our own stocks and our own bonds, our own lending. Let's take a look at what we have. And what we have here is common stock. We don't have any borrowing. We didn't borrow any money. We say that common stock went from 0 to 60,000. Pretty straightforward. What does that mean? We brought to the business 60,000 in cash. That's excellent. Let's do that. So common stock, issued common stock is 60,000. We brought cash. Now we are told this additional piece of information. Okay. Right here. The company paid dividend from its profit. Dividend also part of our financing. But we're not told what is the dividend. And I put this on purpose. So this way we're going to compute how much is the dividend. Which dividend did we pay? Well, to understand the dividend, you have to understand the account called retained earnings. And if you don't understand retained earnings, we looked at retained earnings in the prior chapter and I have a full recording about retained earnings. For our purposes, retained earnings started with 0. Okay. And what effects retained earnings net income? Net income increase retained earnings. We see that net income went up by 59,000. Net income brought retained earnings up. Then we end up with retained earnings of 45,000. And this is the ending balance. So we're starting with 20 plus 59. And we end up with 45. Well, we must have deducted something. And that's something what reduces retained earnings. Dividend. Now we could figure out the dividend. And if we solve this formula, the dividend must be, if my math is right, 13,000. 14,000. 13,000. 14,000. 14,000. Okay. So it means we spent on dividend 14,000. Notice I did not give you the number, but you were able to derive it from analyzing retained earnings. And this is why the statement of cash flows is challenging for many students. Because if you don't understand retained earnings, forget it because the problem only would give you, you pay dividend. Sometimes they even stay silent. They give you the balance sheet, the income statement prepared based on the information. And you have to derive this information. Say, okay, I must have paid dividend of 14,000. Okay. So from financing, it seems I am bringing money. From financing, I'm bringing 46,000. So let's take a look at this, at the overall picture of this company. From operating, we brought a little bit of cash from operating. We spent more, most of it, we spent. So we brought 10,000 in cash and we spent more to buy the land. Hold on a second. So where did the remainder came from? Well, the remainder came from investors. From that 60,000 that the investors invested in the business. Otherwise we will be in trouble. So if the investors did not bring in money, we will be in trouble. And if we go back to Amazon and Tesla, this is what was happening to Amazon and Tesla, investors believed in the companies and what they did, they kept investing money in the companies through common stock and through that, through lending and issuing common stocks. Now, once we have those three sections, we can compute the net change. So 10,000 plus minus 15,000 plus 46 equal to 41. So there was an increase of 41,000. We'll take the increase, add it to the beginning of cash, happens to be zero. We'll end up with 41,000. Voila, everything matches 41,000, 41,000. So we did explain the change in cash and this is the purpose of the statement of cash flows. What can we say about this company? We can say this is, you know, a company that just starting, I would say they will need more help on converting account receivable into cash and they should be fine. If they can convert more account receivable into cash, start to buy more, more property, and equipment if need be and operate the business, make a profit and keep going. Once again, this is a, I would say a powerful, simple, but powerful illustration of the statement of cash flow because I kept it clean. I kept it simple. I did not involve a lot of accounts. Don't worry in the next session, I will be involving much, much more because you want to really understand this inside out. Again, at the end of this recording, I'm going to remind you whether you are an accounting student or a CPA candidate. Keep your CPA review course, whatever that course you are taking. Keep it. I don't replace it. I provide you with alternative explanation, basic explanation, the theory behind the concept, rather than giving you shortcuts, mnemonics, reviews. I explain the material once you know it, then your CPA review course will help you prepare for the exam. Good luck, study hard, invest in yourself. The CPA is worth it, and best of luck.