 In this discussion, we will discuss the discussion question of Explain how the cash flows from investing and financing activities are formatted If we see a discussion question like this, we can see first that this is probably relating to a statement of cash flows 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 if we don't know exactly where to start in terms of investing activities or financing activities We can start with just the overall what is the statement of cash flows What are the three categories of the statement of cash flows and then get into more detail in terms of those categories And probably pick up some points So the statement of cash flows is going to be one of the major financial statements We have the balance sheet income statements statement of cash flows and the statement of equity And the statement of cash flows will be reporting the change in cash It's an activities statement that we have Three major components to the statement of cash flows Investing, financing and operating or operating investing and financing Those are going to be the three major components Now clearly here we are focusing in on the investing and financing Probably the two that we have the least familiarity with Because we probably focus most of our time on operating Because that's where most of the activity happens is in the operating activities So we could kind of compare and contrast We can say what is the operating possibly and compare and contrast that To the investing and financing and possibly pick up points that way So we could say the operating activities is similar to the income statement We're looking for cash flows from operations Most of the activity will be in the operating activities Because that's similar to the income statement That's the statement that's telling us what is going on typically But there's going to be a few activities that are not included In operating activities that are dealing with cash flows And those of course will be in the financing and investing activities So what is it then that's going to go into investing and financing What types of cash flows are happening that aren't part of normal operations Well if we go to the investing activities we're going to build that We're going to format that by saying what's going to be included in the investing activities Now if we purchase investments or sell investments obviously that would be included So if we're buying stocks and bonds from other companies that would be included If we're selling stocks and bonds that would be included If we're talking about other types of investments however we have to think of it in a more of a broader context And that means if we're buying like a long term investment Then that will be included in terms of any type of assets that's a long term investment Like property plants and equipment So if property plants and equipment is being purchased that's a type of investment And I would think about that with a journal entry anytime I look at any type of account Try to think about well what's the journal entry related to cash Is there anything involved on the income statement related to this account Or does this account deal with the income statement much at all So if I purchased equipment for example we would debit equipment and credit cash Neither of those accounts are income statement accounts And therefore it's not an operating activity typically And then I would ask myself well what did we purchase anything You know did we purchase an asset In this case yeah we purchased equipment And therefore it's an investment as opposed to financing Which would be dealing with not purchasing assets but just trying to get money or pay back money To finance the company So that means that the investing activity is going to be built up from The investment sales and purchases but also from the purchasing sale of assets Like property plants and equipment so if we buy property plants and equipment That's going to be a cash outflow in terms of investing If we sell property plants and equipment that's going to be a cash inflow for the investing Financing activities are going to be again not have a whole lot of activity involved in them Could be a large in dollar amount but most of the activity again will be in the operating activities So what's going to be included in financing Only the things that are helping us to finance the business in terms of getting capital Getting money into the business or paying back that type of capital we got So not through normal operations because that would be in the operating activities But through other means what would those other means be? Loans like if we take a loan, if we have bonds payable Or if we're going to get investments just from the owner Those would be ways to finance the company to get capital to get money into the company So that we can fund our businesses and our operations So a loan if we took out a loan then we would increase the financing activities Same time a thought process you think well what's the journal entry to take out a loan We debit cash and credit the loan payable And there's nothing that deals with the income statement there And so therefore it's not really an operating activity Also did we buy anything are we investing in anything No we didn't buy anything we just got money we're trying to just get capital That's why it's going to be an investing activity And then if we had a bond it would be similar If the owner puts money into the company either by issuing stock if it's a company of corporation Or by an owner of a partnership or a sole proprietor putting money into the company Again that's a form of financing that's financing from the owners And so that would be an increase in the financing activity If we paid back a loan then we're paying back for financing We're paying back a financing activity that would be a cash outflow Related to financing if we pay back the owner in the form of a dividend for a corporation Or in the form of draws for a partnership or sole proprietor Then that would be a form of financing we're paying back the owner Part of the investment that they've put into the company