 in this discussion we will discuss the discussion question of discuss the components of the statement of cash flows if we see a discussion question like this or essay question like this we can start out by 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 then 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 i first just listen what a statement of cash flows is then we can start listening to components what are the categories of the statement of cash flows and then possibly get into the details of what will be included in those categories and why and maybe even examples so the statement of cash flows is going to be one of our financial statements along with the balance sheet the income statement the statement of equity statement of cash flows will be reporting cash flows the inflows and outflows for cash why is that necessary it's reporting activity over time the income statement is reporting activity over time but not on a cash basis and of course cash is very important so the income statement is reporting how we're doing in terms of performance but not in terms of cash flow so the cash flow will will pick up that information and shows what's happening in terms of cash flow it's really important of course because cash in itself is important and also cash is going to be involved in every other major cycle within the company so cash flow by us knowing the cash flow we're we're knowing something that's going to be important to every cycle basically within the company the major components of the statement of cash flow are going to be cash flows from operating activities cash flows from investing activities cash flows from financing activities and our goal is typically going to be to to know which which type of activity we're talking about in terms of a statement of cash flow so when is something going to be operating financing or investing with relation to a cash flow statement now the operating activity is the first thing that we want to think about because that's really the major thing where most of the activity should be and that's because remember that the cash flow statement is going to be a timing statement it's something that happened over time so we're talking about events that happened over time and that's going to be similar to like the income statement as opposed to the balance sheet so we're kind of converting the income statement in some ways to a cash basis and so we're and that's going to be the operating activity that's going to be dealing with that so the bottom line in other words of the cash flows from operations is going to be similar to the bottom line of the income statement we're kind of like taking net income and having cash provided by operations which is similar to net income on a cash basis and that means that most of the activity then that we think about normal operations would be on the operating activities now there's two methods of the operating activities we could have the indirect method or the direct method the indirect method is going to start with net income and kind of reconcile it to cash flows from operations so it's kind of starting at net income and then converting it to a cash basis basically net income and then we have the the direct method which is similar to us taking the the income statement and going to line by line and reformatting it so we'll take revenue and we'll convert it to a cash basis and call it you know cash from customers we'll take cost of goods sold and so on expenses and convert them to a cash basis a more of a direct method then we have the two other components of the statement of cash flows and that's going to be the cash flows from investing activities and financing activities now investing cash flows are going to be dealing with of course cash flows from investments things that we typically think of as investments and I typically think of stocks and bonds as investments so if we have investments that we're dealing with of course then the cash flows whether they be inflows or outflows related to the investing or selling the investment would be included but we also need to think of investments more broadly in terms of investing in like fixed assets like long-term assets because those are really a type of investment as well so when we think about investing activities in the statement of cash flows we're thinking about investing in basically anything that's long-term on the balance sheet because that's we spent cash in order to invest in this long-term activity so if we're purchasing a long-term activities that we're going to use in order to help generate revenue in the future property plants and equipment then it's going to be something in the investing activities and you can think about that in terms of how do I know if it's operating or investing if you think of the journal entries related to it and and the journal entry has nothing to do with an income statement account then it's probably not on the operating meaning if you buy property plants and equipment we're going to debit property plant and equipment and credit cash if we bought it for cash and neither of those items are income statement accounts they're two balance sheet accounts therefore it's probably not going to be an operating activity but in this case an investing activity so then we have the financing activities and financing activities typically have to do with us financing the company some way somehow some getting the money somehow in some way other than normal operations like sales and whatnot in some some way other than selling investments how would we do that typically through liabilities notes payable bonds payable or through owner investments so if the owner invests company by issuing stock or by if it's a partnership or or a a sole proprietor the owner putting money into the company that would be a financing activity or if we got a loan financing activity if we pay back a loan or pay back the owners with dividends or withdraws to the owners or we pay back the loan those would be examples of financing activities so those are going to be the major components that we would go through if we had some question like this we got statement of cash flows we've got the operating activities investing activities and financing activities and those are just some of the examples of what would be components or parts of those different activities