 In this presentation, we will continue on with our statement of cash flows, taking a look at the investing activities, specifically the purchase of equipment. We're going to be using the comparative balance sheet, the income statement, and additional information focusing here on the comparative balance sheet, which we use to make this worksheet. 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. So this worksheet is our comparative balance sheet. We've been going through this worksheet and really looking for the differences. We're finding a home for all the differences. Once we do that, we were feeling pretty good. We have done this all the way through the operating activities. So all of the cash flows from operations. So we've gone through here and we've kind of picked and choose the items that are going to be cash flows from operations, which is probably the way most people approach this. But just note that as we've done that, we've tried to pick up the exact differences here. We haven't gone to the income statement and thought about it separately outside of this worksheet. And then we're going to go back and make adjustments. So we found a home for the difference in cash because that's kind of like our bottom line. And then we've got accounts receivable inventory prepaid expenses. And then we skipped equipment and went down to accounts payable to continue with the current portions here or the current assets and current liabilities. Now we're going to jump back to the equipment and we're going to add the equipment to where it should go, which will be the investing activities. And that's usually the first question people have. But when they go through this, they're going to say, well, you know, why does the equipment go to investing activities? How do I know that? That doesn't seem intuitive to a lot of people. And one reason it doesn't seem intuitive is because, you know, equipment, when I think of investments, I typically think of investing in stocks and bonds, not so much investing in anything else. But anything is an investment. If it's an asset, if it's on the books as an asset, we can kind of think of it as an investment. Equipment's been long term, we're not going to use it for a while. Therefore, it's going to be a type of investment. You can also think of the journal entries and say, well, are any of the journal entries related to income statement accounts? Because remember that the cash flows from operations is really kind of a kind of like an income statement that we're making on a cash flow basis. So we're trying to conform in the indirect method, net income to cash flow from operations. So net income to kind of like net income on a cash basis. And so if we think about this, then we're trying to say, well, is there anything involved with the equipment related to the income statement? If not, then it probably doesn't belong in the cash flows from operations. And the two journal entries we typically have for equipment are when we purchase the equipment and then we sell the equipment. So when we purchase the equipment, we debit equipment and then we credit cash or loan or loan. And there's nothing involved with income statement. Cash is a balance sheet account. Equipment's a balance sheet account. The loan would be a balance sheet account. So nothing is going to be involved there on the income statement. So that wouldn't indicate that it would not be on the operations section, but somewhere else either investing or financing. If when we sell the equipment, then we're going to debit cash and we're going to credit equipment. And we'll have to deal with accumulated depreciation as well. But yeah, none of those are going to be income statement accounts. We could have a gain or loss, however, but that's going to be minor. And that's, and we already actually dealt with that up here. That's going to be part of this transaction. So that means that the equipment is not going to be part of the operating activities. It's got to be in investing or financing. And which one do we go in there? Well, then I would ask myself, well, did we buy something? You know, if we're buying something and it's not in operations, then we're investing in it. We're using it sometime in the future. And that's what we're doing here. So then it would be investing the financing. Of course, if we weren't buying something, if we got the money from the owners from selling stock or from an owner investment, or we're giving money to the owners, then that would be the financing. So we're going to have an investing activity here. Now, this is another area where I'm just going to simplify this, we're going to say, okay, the equipment went from 200,000 to 262,250. So there's an increase of 62,250. And so if there's an increase, that must mean probably that we purchased equipment. If there's an increase in equipment, then we probably purchased equipment. So then that means that there's going to be a decrease in cash. If there's an increase in equipment, we assume we purchased it with cash. So if there's an increase, we're going to decrease it here. And it's the same kind of logic you can think for a accounts receivable. Now, this is another area where we're going to say, well, that might not be the full number here. Because when we purchase these equipment, we may have purchased it on account. I mean, we may have financed part of it. And so, and we may have more than one purchase that happened in the purchase can be messy, meaning we may not just have bought it with cash, we may have bought it and financed it, we may have more than one purchase. Now, luckily, the equipment account, typically, we don't buy a lot of equipment. It's not like something that's going to happen every day. It's not like when we look at the GL, the general ledger for cash, where it would just be a huge general ledger. The general ledger, the activity for equipment should be fairly small. And so we should be able to go to each purchase of equipment and say, okay, what happened here, and try to figure out how much of it we financed and what to deal with that. And also, did we sell any equipment? If we look at our other resources up here, we'll see that cash received, we have some stuff related to equipment, I believe, purchased equipment here, and then we have a loan. So we have some things dealing with equipment. So in practice, obviously, if it's a book problem, we'd have that information in practice, we would probably automatically go through the equipment account and look at it and pull the documents for equipment, look at the journal entries for equipment, say, okay, what happened to it. And it's probably more complicated than one purchase of equipment for 62,250 cash. So we probably financed it and there's probably more than one purchase. However, what I don't want to do is start breaking this number out, because it's going to get very complicated. It's going to get, it could fix our depreciation problem, which that didn't tie out. That's probably part of this either disposals that we had in the equipment. And there could be something dealing with loans, which is probably going to be down here in the financing area, which we don't even have yet. I don't have anything in financing yet. I haven't looked at the loans yet. So at this point in time, I don't want to start breaking those things out. And I certainly don't want to, you know, start taking numbers that are not on this statement on the differences. I don't want to look at numbers that aren't part of this difference and start adding them over here, like going through the GL and looking at the actual cash that was paid, put that number here without tying it out to this difference. Why? Because we'll never get to reconciling that way. We're never going to have a process to reconcile. What we can do is say, hey, I recognize that that's probably way too simple, but I'm going to use this number now. I'm going to get to this number very easily by not breaking out these numbers into their components, but just using them knowing that they're not totally right in all areas, then we'll make a worksheet to fix them in a systematic way so that we can be in balance and actually have the thing work as we go through it. So note here that this is an imperfect system now that we're going to revisit as we adjust it. As we first go through the preliminary adjustments, we're just going to say that equipment's the difference here. It's the difference. This happened to be an increase. So we're going to assume that we paid cash for that increase. If it was a decrease, then we would assume we sold the equipment and we're going to recognize it in either one. It's probably more messy than that, but I don't want to deal with the mess now because I don't have all the tools like the other accounts here yet to mess with that and still reconcile to that difference. We will do so once we have reconciled to the 61900 and go back and then fix this information.