Episode 179: Introduction to the Statement of Cash Flows

the statement of cash flows will not report the This is a topic that many people are looking for. star-trek-voyager.net is a channel providing useful information about learning, life, digital marketing and online courses …. it will help you have an overview and solid multi-faceted knowledge . Today, star-trek-voyager.net would like to introduce to you Episode 179: Introduction to the Statement of Cash Flows. Following along are instructions in the video below:

“The last financial statement that we re going to talk about is the statement of of cash flows and the statement of cash flows is also a very important statement look at and what it s designed to do is to kind of summarize. The sources of cash flow. So if if the company is spending cash it ll highlight where are those expenditures going and if the company is receiving cash where are those receipts coming and so it s really a way to kind of delve in a little bit deeper to kind of you know the the sources and receipts of cash. Because cash is very important in an organization and so we just don t want to know what the kind of dollar amount is that we possess what we want to know you know where is it going where is it coming in if we re receiving you know if we have you know five million dollars in receipts in cash from a given period of time on the surface.

You would think that d be very good. But when you start to look at how that was received it was from taking a long term loan. Well then you start to get a better sense of well how the company is is getting financing operations and those sorts of things so it really. It provides a little bit more detail than just seeing kind of those cash fluctuations on a balance sheet.

So when you re looking at a statement of cash flows its organized and broken up into three distinct categories. So we have cash from operating activities cash from investing activities and cash from financing activities and within each of these three sections. We are going to provide transactions specific to you know kind of what this category represents and so we re gonna look at well under operating activities did we are we cashflow positive or where we kind of cash flow negative and investing activities again where we cashflow positive or we cash flow negative and the same thing with financing activities and then we just kind of summarize these three categories to get a total amount of whether we you know have took in more cash or whether we you know spent money in this sort of case. So let s talk about each of the three sections.

So you get a better idea of what is included in each one so in the operating activities section. We re looking at those you know kind of you know cash flow associated with operations of the company now more specifically that generally represents the sale of goods and services. So you re probably thinking well what kind of cash flow would we receive from the sale of goods and services well..

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This is predominantly when we conduct business transactions and we receive payment for those services. Then this would be cash. That s received from operating activities. Likewise.

If we have accounts receivable and we collect on those accounts. Those are represented under operating activities on the same token. If we actually pay money for inventory. Well that would be a cash outflow associated with an operating activity because we are paying money so that we can in turn get inventory that inventory of course will be reflected on our balance sheet.

So you can see how all the three statements are kind of interconnected. But it will show as a cash outflow on the statement of cash flows specifically under operating activities. So all the operate all the cash flows associated with the sale of goods and services are going to be associated under operating activities. One thing that this also includes that is very well i wouldn t say not very common.

But less common than sale of goods and service coming than the sale of goods and services under operating activities is interest that we receive from some of our investments specifically from investments that are we own in other companies. And so if we have bonds for example and were paid interest on those particular bonds then that is interest that we were reported under operating activities now the next section. We ll talk about is investing act..

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Now this is going to show the cash that we ve received specifically associated with investments now again that s a general category. So just to give you some information on what that would include we re primarily talking about fixed assets and other financial assets that are bought for long term investments so we re not looking at things that are very short term. We re looking at fixed asset. So that could be property it could be equipment.

But also it could be investments that we make that are very long term investments and so we re planning on keeping those investments for a long period of time. We don t plan on purchasing them. And then selling them within a matter of days or even weeks for that matter. So some common examples of cash flow associated with investments could be purchasing equipment could be purchasing properties.

So like manufacturing facilities or office space. It could also be purchasing financial security. So say we purchase like stock of another company that would be an investing cash flow activity. Because of the fact that we re purchasing that now that would represent an outflow of course since we re paying money and in return.

We re getting stock likewise. If we bought equipment that would be of course a cash outflow because we re paying money for the equipment so cash is leaving the firm. But we do get to claim that as an asset on the balance sheet of course you can see again how they re interconnected..

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Now if we finance. The purchase of the equipment. Though with a loan then that loan would not necessarily be reflected here. But we ll go in a different section.

Although we ll report the cash. The investing activity for the actual equipment. So the last section is financing and so financing should be very relatively simple these this is going to show all of the transactions that took place where cash was involved specifically surrounding financing. The company so some common examples of financing active these are going to include if we issue stock or take out loans those are the two common activities that take place in this category that are reflected on the statement of cash flows.

So going back to my prior example where we purchase some equipment let s say that we purchased it utilizing some money that we obtained from a bank loan well under financing activities you re going to see a cash inflow you re going to see that we actually got money because we took out a bank loan. So that technically is a receipt of funds even though we have to pay it back. But we re gonna pay that money under investing activities because it s an outflow associated with purchasing equipment. So it ends up being sort of a wash.

But we do have to of course pay it back so it ll show up on our income statement in the form of interest and then the form of payments that we make on a continual basis. So that s the structure of a statement of cash flows. You have those operating activities which again are associated mainly from the sale of goods and services..

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We have investing activities. Which are associated with investments that we make so investments in other companies. An important distinction if a company buys back their own stock. That is not considered to be an investing activity.

Because investing activities are long term investments and purchases of stock. Made in other companies. If a company purchases its own stock then it goes under a financing activity. Because again.

It s specifically related to its equity stake and its association with debt and then again financing activities are specifically stock related. So we re gonna issue stock. We re gonna buy back our stock. We re gonna you know incur some kind of loan or we re going to pay off a loan.

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