 The statement of cash flows is divided into three categories, operating activities, investing activities and financing activities. This video will focus on the investing activities section. Investing activities relate to transactions affecting cash inflows and outflows for long-term assets. In order to prepare a statement of cash flows, we need some financial information. Specifically, we need the current year's income statement, a comparative balance sheet, and some additional financial data. A comparative balance sheet is just a balance sheet that compares two years of data. So let's use the example of Appu's Quickie Mart. Here is the income statement we will reference. Here's the comparative balance sheet, and you can see the years 2015 and 2016. And finally, some additional financial data. Any assignments you might encounter will provide this information to you, but I'm going to show you how to calculate this information in case you run into a problem that doesn't present all the pertinent financial data needed. The items highlighted in red are those related to long-term assets, which I've identified as PP&E. Recall that that stands for property, plant and equipment. So a partial statement of cash flows is shown here. The investing activity section is shown directly after the operating activity section. And I've identified a couple of items that will go into this section. Now let's look back at the additional data. The first item I've identified is some information about the sale of property, plant and equipment. In this case, we are given a lot of information, but we really only need the cash amount. So the sale and disposal of property, plant and equipment for $150 is added in the investing activity section because cash is being received. The next item is the purchase of PP&E for $800. Since cash is being paid for the purchase of PP&E, $800 is deducted from the investing activity section. And actually, that's it for this section. So let me explain why the other long-term asset items aren't listed here. You see two items that would normally or could normally be listed in investing activity section. Let's look at each one. When property, plant and equipment is scrapped, there is no cash impact. In fact, I've shown the journal entry here to emphasize this point. So the transaction doesn't affect the cash account and therefore doesn't go on the statement of cash flows. The next one is a little trickier. We issued bonds in exchange for property, plant and equipment. Again, I've shown the journal entry so you can see the cash account is not involved. In fact, this is called a non-cash investing in financing transaction. And there is a separate video that explains how to report these types of transactions on the statement of cash flows. But since cash isn't involved, it doesn't go in this section. Finally, you may encounter questions in which you are not given all the information you need with the additional financial data. When this happens, I would strongly encourage you to write out the T-account with the data that you do know and then start solving for what you weren't given. Here I've listed all of the items. But if some things were missing, I would have been able to figure out what it is and the cash impact of it. So here's what the statement of cash flows looks like after completing the operating and investing activities section. You can see that we have negative net cash flow from investing activities of $650. Don't be alarmed by this. Investors and creditors expect to see negative cash flows in this section. Positive cash flows mean a company is buying more fixed assets than it's selling. Positive cash flows could mean that a company is selling fixed assets to help with cash flows. That could be a problem if that were happening a lot. So please watch the financial activities section to see the statement of cash flows completed.