 accredited accounts payable. So we expensed something that we didn't pay for in that sense. And therefore, we're recording an expense that needs to be backed out. So we have an expense that brought down 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. This number, and we need to take it back out of that number. And that's why basically if accounts payable goes up, then we're actually going to increase the net income. On the other hand, if accounts payable goes down, what happened then we paid more cash, meaning we credited cash and we debited accounts payable. So we paid the cash out at a later date. And if we paid the cash out, then we need to recognize the expense when we paid the cash. And therefore, if accounts payable goes down, we are going to decrease the net income. So again, you want to mull that over in your head, but and the same is going to be true with all other liabilities, basically. So the same is true for all assets will be doing this, all liabilities will be doing that. It's good to think through the AR and the AP just for practice and then apply that same rule to the rest of the accounts. So we're just going to say negative of the 84 to 50 and enter. And there we can see that it's bringing down the balance here. And that's because it went from the 102 down to 17. So it went so it went down, meaning it's going to decrease the flows or the net income. So now we have the net cash flows from operating is this number here. And I'm going to highlight this and say we found a home for it. All right, now we have the short term notes payable short term notes payable. Where's it going to go? Is it going to go from flows from operations flows from investing flows from financing? And note that if we if we think about, you know, what happens or what types of things affect the short term note payable, a note payable, if we got a note payable, we debited cash and we credited note payable, no income statement accounts, therefore not going to be on the statement of operations is not going to be on the cash flow from operations. So is it going to be investing or is it going to be financing? And in this case, if we're talking about if we're talking about loans, we're talking about ways to finance the business, that's going to be a financing activity. So we're going to put it down here in the financing activities. Now in the description, I'm going to put cash borrow from short term note. Why? Because the note went up. And I would assume that that's because we borrowed more money. So we're going to say that the more money was borrowed in that case, again, that there's not going to be a lot of transactions in a note. Therefore, we can go back and kind of check that and see if that's the case by just looking at the at the general ledger looking at the activity, looking at the agreement that came up with those numbers. So I'm going to put a negative of that 5000 and enter. And that of course is going to increase the cash flow statement because we received cash in that case. All right, next one, we got the long term note. Once again, it went from here up to there. And it's a note that and the note is not going to be on the cash flow from operations. It's also going to be of course the financing activity down here. Now, I'm also going to put cash borrowed here and I'm going to put a negative of this number. We're assuming that it went up again that we borrowed that once again, I'm going to go back to the terms of this note. I'm going to highlight these both of these and say look at that the terms of that note and see if that is what actually happened. But for now, I'm going to say that we found a home for this number. We're going to go back and look at it at a later time. Okay, so then we have the common stock. So common stock is going to be the stocks that were basically issued for the most part. And a lot of times they're not going to change from period to period because the common stocks won't be issued. Stock will be trade often traded oftentimes if it's a publicly traded company. But the stock issuances do not happen all the time. In this case, we went from 200 to 215. Therefore, it looks like we issued more common stocks. So question being, is it going to be in the cash flow from operating cash flow from investing or finance? And if you think about the common stocks, what's going to happen, we're going to debit cash when you get cash from investors, stockholders, and we're going to credit the common stock, nothing on the income statement in that case. Therefore, it's going to be financing or investing and it's going to be part of financing. If we issue more common stock, we're generally trying to generate money financing for the company. So we are going to assume we've received cash because of course the common stock went up. Why did it go up? Because we got cash for it. We're going to put a negative of the 15 that'll flip the sign and that'll increase the cash flow, which makes sense because the cash flow would be going up from the financing that we received. Then we're going to have the paid in capital. Now the paying capital is a little bit tricky because you might be thinking, well, where does the paid in capital come from? Now remember when we issue common stock, if the stock is issued at par, meaning we have this set par rate out there, then we're not going to actually sell it for the par value. We're going to sell it for whatever we can get. So anything that we get over the par value is going to have to put into this additional paid in capital. So note that the additional paid in capital is basically part of the common stock, meaning we have this many outstanding at par, but we really sold it for this plus this or the two 45. So that's part of the issuance here. So I'm going to include that in this number. So I'm going to double click on it. I'm going to go to the end of it. And I'm going to put a negative of this number. And the formulas might get a little confusing for you there. I mean, if you think about it, obviously if we highlight those two, it's a 45,000. We want to make it a positive number. We set a negative plus the negative. And that will give us a flip the sign of both of them. You can also do it this way, negative SUM of this plus this. So I want to take that 45 and flip the sign, make it a positive number because the cash flow should be increasing. All right. So we're going to add these up now. So the cash flows from from operating notes, we found a home for all these. So this is good. We're going to add them up and we're going to see if the change then now adds up to the 61 nine, which it should if we found a home for everything and we got everything going kind of the right way here. So we already added up the cash flow from operating. That's all of this. Then we've got the cash flow from investing. So I'm going to highlight this and sum these up. And of course, we we pull this out to the side. Generally, that's how we often format our worksheets. I'm going to highlight these two. I know nothing is here yet. Probably something is going to go there when we start breaking things out. And so there we have that. And then we got cash flows from financing activity. I'm going to go down to the bottom here, going to equal the sum of these highlight these. And once again, I know I have a blank cell down here because probably there's something else that we're going to have to break out down there. And I'm going to put enter. And so now we have these are our subtotals operating investing financing, then we're going to sum up those three numbers. And that should give us the net change in this case, an increase in cash. So we're going to say this is the sum of the operating plus the investing and the financing given us the 619 that should match 619 up here. Note that it has that has to work. So if we found a home for all of these, we have it going the correct way in terms of a plus and minus format, then the difference has to be that it has to be it has to work out. So if it doesn't, then just, you know, go through here and check each one of these items until you find which one is not going the right way. And it will figure out if done properly, it has to work. Okay, so then what we're going to do is we want to end off with the cash flow at the end of the year, because we want to be able to tie out the financial statements and tie it out to the cash flow beaming. We want it the end number to be this number. So what we're going to do is we're going to take the change and then we're going to we're going to add to it what the cash was equals the cash at the beginning enter. And that means that if equals this is the change 619 plus the cash that we started with 61 550, then the ending cash would be the 123 450, which should tie out to the cash here. So that's what's going to the cash flow ending balance will always tie out to the balance sheet cash amount. All right, so now we have this entire thing, but and it works at all times out everything where you know everything is the way it should be. However, we have these accounts here that remember we're saying those could have some issues. And we want to go into each one of those individual and say, okay, is that number right? Is it do we have to adjust that number? And then we'll adjust them systematically so that we can know if we're out of bounds where we're out of bounds when we got out of bounds. So most problems will actually give us some more information. If it's a book problem, they often give a detailed information or more information like like this laid out like this in real life, obviously, we would go back and look at the actual transactions in the general ledger. So so I give us some more information here. So let's take a look at the net income. So we found that if we obviously we're going to check net income to the income statement and see if it ties out, we did that before we said the 104.5 does not tie out to the net income on the income statement, which is 158.1. So we know something's wrong. There's something's going to have to change. We're going to have to adjust this number somehow. Now, why would that happen? Why would the change in the retained earnings not just be net income? And again, if we went to the GL to the retained earnings general ledger account, we would see exactly what happened when we'd say, oh, we closed out the 104.5. But we also had probably something else called dividends in this case. So dividends is probably the other thing that could happen. We wouldn't have to guess that in real life. We wouldn't be looking at, you know, just a random set of numbers. We'd go look at the T account or the general ledger. And we would see, okay, there's something else in there. That's something being dividends. If we think about the, I'm going to think about the journal entry now, and then think about where we could adjust. I'm going to adjust this number to agree with net income in such a way that it will be in balance. So you can see I have a similar kind of setup here. We've got the number here. We're going to put a change here. We're going to end with the balance here being that plus that. And therefore, if we have one change going one way and the other change going the other way, we will remain in balance. So let's see. First, let's analyze what a depreciation entry would look like. If we, if we paid out dividends, then what would happen is cash would be paid out, cash would go down. And if we look at the GL account, I'm going to scroll over here and pick this information up. It's going to be in our added information. We would see the dividends. In this case, dividends declared and paid 53,600. That means that cash went down. I'm going to scroll over to our worksheet. If we were going to do the journal and treat related to that, going to put a credit of 53,600 cash went down. We're going to debit something for 53,600. And that debit is going to go to retained earnings. So that's obviously that retained earnings is what is throwing us off there. That's what's making the net income not work. So now let's think of that. Well, if that's the case, then what should we increase or decrease on our cash flow statement? And of course, we know that net income needs to increase. Notice, I'm not talking about debits and credit here, but same kind of idea. We're going to say that, well, net income is going to go up by that 53,600. And something else is going to have to happen. I know that this needs to go up by 53,600, because that makes my net income be what we want. So if I look at that, now this ties out. If I go over here and say, okay, that's the 158.1, that's what had to happen. But what's the other side going to go to? We are now out of balance if we scroll down here. We know that this number needs to be the 123,450. It is not now. So we're going to have a decrease somewhere in relation to that. And that decrease is going to be called cash paid for dividends. And where's that decrease going to go? Well, it's going to be a, it's going to be a financing activity in this case. That's going to be in this blank spot that we left down here conveniently for this number. So I'm going to put the cash paid for dividends and I'm going to put it over here into the change column. So it's over in the change column, so it doesn't throw off this number down here. So we're going to say the cash paid for dividends negative 53600. And now we're back in balance. So that's the idea. We broke this number out. Okay, now this one is fixed. I'm going to unhighlight that. We found a home. It's really this number and we fixed it in such a way that we're still in balance and we can move on to the next one and say, okay, how about this depreciation? Is it out of whack? Let's check it on the income statement and let's go through the same process. So the way we'll do that is we'll say, okay, depreciation, that's on the income statement that 15 750 should tie out to the income statement. Let's go down to the income statement here and we look at depreciation and doesn't tie out right. And we go, there's something else in there. So obviously in real life, what would we do? We would go to the general ledger account for depreciation and see what else is in there. Something else would be posted to it other than just depreciation expense. Obviously here we're going to look at the problem and see what else is there. If we take a guess at it, what else could be affecting depreciation besides the normal journal entry of debiting depreciation, crediting cumulative depreciation? And the answer would be that we would sell something. What if we sold something or disposed of something that could affect the cumulative depreciation? And so if we look at our information here, we said we sold equipment so that we have equipment sold for 26 50 51,000 cost and it had accumulated depreciation on the books at 22 850. So let's take a look at what that journal entry would look like, then think about how we can back those numbers into our cash flow statement. So I'm going to, I'm going to see rebuild this journal entry and then think about how that would affect our cash flow statement. So let's go over here into our journal entry area. And we if we purchased equipment, if we sold equipment, I should say we sold it for cash, they said cash would go up by the 26 50. This is the journal entry that would happen and equipment is going to go off the books. Equipment has a debit balance. We're going to make it go down by doing the opposite thing to it. Equipment is going to be a credit for how much we bought it for, which was 51,000. So that's going off the books. We're now selling it. And then we have to get rid of the accumulated depreciation related to the equipment. So remember the equipment was on their at cost at 51,000,