 In this presentation we will continue on with the statement of cash flows, looking at the financing activities, looking at cash borrowed on notes. We're going to be using the information with our comparative balance sheet, the income statement, and the additional information focusing on the comparative balance sheet first that will be used to create 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. We have gone through this worksheet looking for all the differences and finding a home for them starting of course with cash down here and then we kind of skipped around to pick up all of the cash flows from operating activities and that's really how people usually start this thing out and rather than going just from top to bottom picking out the operating activities then we went back and we picked up the cash flows from investing activities now we're going to go down and pick up the financing activities and those deal with notes payable here so we have have the notes payable and we have this common stock issuance so those are going to be things that are typically going to be in the financing and you might think of that well how would I know this what why would I know this going through well if we go through these remember that the cash is obviously down here that's where we started and then the current assets versus current liabilities most of them are going to be up here and that's going to be the accounts receivable the inventory prepaid expenses and then equipment we had to we had to jump down we had to think about it and the test I would have would normally be I mean you'll get used to just knowing where these things will go after time but would be is there a journal entry what's the journal entry if there's a journal entry that's related to an income statement account a primary portion is related to an income statement account then it probably probably belongs in the cash flows from operations most of the cash flows will be from operations because that's what we do so this is probably going to be the largest section that's why we spend the most time concentrating on it if we go through the journal trees and we don't see any major income statement account then it's probably the case that it's either investing or financing if we purchased something as we did with equipment an asset then it's going to be a form of investment because we're investing we're not financing we're investing we might have financed the equipment with a loan and and that's going to be part of the transaction but the actual purchase of equipment the cash related to it will go here and so and then we when we went through the accounts payable and then the notes payable we start thinking well a notes payable you probably just hear it and say hmm that probably sounds like it's not operating it's probably financing or or investing it's going to be financing you can also think of that through with the with the journal entry what would be the normal journal entry for a note well we would debit cash probably we got cash and we're going to credit a liability notes payable and there's no income statement account related to that the other side of that is when we pay off the note which we would credit cash and debit the note now interest might be involved in there but that's not going to be the major component of the financing of the note so it's therefore not an operating activity it's not kind of part of the income statement the major portion of the notes not an income statement so it's not an operating activity and we're not buying anything necessarily if we just took a loan out if we got money cash and credit a liability then so therefore it's not going to be in the investing activities now we might have financed the equipment and if we do so if we finance equipment then no cash flow is involved and we'll have to deal with that but if we just borrowed cash then it would be down here in the financing activities so in this case we're saying okay the short term note payable went from 10 000 to 15 it went up so that would mean that you would think that we borrowed cash so you would think that that would be a borrowed cash now again there's not going to be a lot of loans or a lot of loan activity because it's not something we do every day we're not going to have it's not going to be like the cash account where there's a ton of activity in the general ledger we borrow loans every every so often we pay them off periodically typically monthly or more so than monthly so there's not going to be a lot of activity in the general ledger for the loans but it's probably more complicated than just we took out another five thousand dollar loan it might be that simple but it might be more complicated we might have multiple loans that were grouped together in this loan account or we might have some more that we took out and we made payments so it could be more complicated than this but I don't want to go we don't want to go through the GL at this point in time and make that more complication we just want to put the number here now and then break out that difference so that we can still reconcile the same goes for this loan this loan went from 77 500 to 100 000 so it went increase you would think that we borrowed more money now again I put here cash paid because at the end of the day we're actually this is actually going to flip to paying cash once we make our adjustments so I probably should have started here saying I would assume it would be a borrowing and then if something changed it then we'd say paid why would it change because there's other things there's some other things that's going to be happening with the detail and with the loans and with things like equipment that's typically going to be the case we're going to have to dig into the GL and look at those few transactions related and see what really happened to them the point right now however is that whatever cash happened with the loan is going to be a financing activity and we want to put it in the financing activities and before we get in there and break out all the detail we just want to use these two numbers first so that we can reconcile we can reconcile to this cash flows number here once we reconcile once we have everything recorded all the tools everything on the table then we can go back and dig through the gls and look what actually happened on these loans and see how many loans there are what happened with them and break out in a systematic way in a way that will still be in balance and what we're really trying to do is say here's the 22 500 we want to see we want to break that out but still break out this difference whatever we break it out to should add up to 22 500 and we'll be okay so we want to but I want to first make sure that we're in balance and then do that and and that'll be an easier process now what what are some things we're going to look for when that happens we're going to go through the GL and we're going to look for any loan that happened and we're going to say what happened here is it just a line of credit did we just pull out another 5000 line of credit that we're going to pay back in the future or is it more complex than that did we make payments on it possibly did we purchase equipment and finance equipment that's going to be more complex why because we didn't really pay cash I mean there's no cash happening there there's no debit or credit to cash if we bought equipment and financed it there's no cash flow so if that's the case we're going to deal with that and that's often the case when equipment for example increased up here and and and we have a loan happening here so it looks like there could be a financing option that we bought equipment didn't get the cash and therefore it's not really a cash flow item we're going to have to deal with that and and go through that so those are the types of things we'll take a look at when we do these adjustments