Statement of Cash Flows

Brian Krogol
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Alright. So I want to make one more note before I show you the statement of cash flows. And this is the supplemental disclosures at the bottom of the cash flow statement, we generally show a few extra things. So at the bottom here, at the bottom of the statement, we're going to explicitly tell the cash paid for interest and the cash paid for taxes. Sometimes that information gets a bit muddled inside the statement and we want to be very explicit, investors generally want this information. So we tell them explicitly the cash paid for interest and the cash paid for taxes that's not so important. Right now, I want to focus on these significant non cash investing and financing activities. So sometimes we'll have an uh, some big purchase that doesn't strictly touch cash. So an example would be if we purchased a building. Oops, we purchase a building, but we don't put any cash down and instead we sign a note payable. So notice this is a pretty significant transaction, right? We buy a building, let's say for $5 million and we sign a $5 million note payable. Well, there's no cash in this transaction and it wouldn't show up on the statement of cash flows. However, this is probably pretty important information to the investor. So we would make a supplemental disclosure at the bottom. We would say, hey, there was a purchase of a building in exchange for a note payable and there might be extra information about that transaction in the footnotes to the statements after we show the statements. Okay, so we'll talk more about significant non cash investing and financing activities in a separate lesson. But for now let's take a peek at an example of a cash flow statement, a statement of cash flows here. So the first thing I want to note is here at the top, it says for the year ended december 31st 2012. So remember this is for a period of time, it's not a snapshot. Which statement shows us a snapshot in time? The balance sheet, right? The balance sheet shows us at this moment how much cash is there? How much inventory is there? How much accounts payable? How much retained earnings, Right? It's at a point in time. But the all the other statements, our income statement, our statement of stockholders, equity or retained earnings and our statement of cash flows, they all show a period of time and that's exactly what we're dealing with here. We're gonna have some beginning balance of cash. We're gonna show all the changes to cash during the period and get to an ending balance of cash. Right? So notice how it starts here. It starts with our three sections. It shows us our operating section right here. So operating activities Do it in a different color green for cash. Okay, so the cash flow from operating activities and it shows we'll get into the details of how we calculate this, but it goes through the calculation and notice it deals with net income here because it's an operating activity. And we go through our our calculation and we get to a net cash flow from operating activities, right? So we have this net cash flow from operating activities of $50,000 in this example. And then it goes on to the next section, investing activities, right? Investing activities. And it shows different transactions from investments. And then it shows us our net cash flows from investing activities. And notice it's negative in this case. Right? That's okay. It's allowed to be negative. It's allowed to be positive. Well, we're just showing what happened, right? We this means that we had an outflow of cash, a net outflow of cash from our investing activities. And finally, we have our financing activities. So financing activities here, and it shows us our net cash flows from financing activities was again a negative amount. That means we had outflows from financing activities. This doesn't necessarily mean a good thing or a bad thing in any case, it's just showing you the information. So after we do our operating investing and financing activities, we get a sub total here. So this is the net increase or decrease in cash, which is the total of those three numbers. Right? This right here is the total of this, this And this over here. Right? So it's a total of those three numbers gets us the 14,000. And that's the change in cash during the period. And we take that change in cash and add it to the beginning amount of cash. So the 14,000 change in cash plus the beginning amount of cash. So this is the beginning of the period. This is the change in cash and this is the end of the period, right? If we take the beginning plus the change, well that gets us to the ending balance and this ending balance, this will be shown on the balance sheet. The balance sheet is going to show us actually both of these. It's gonna show us the beginning balance as last year's balance, right? Because when we show a balance sheet, we don't generally just show one year. We show last year as well, right? So it would show us the beginning balance as last year's balance. And then it would show us the ending balance as this year's balance. So the castro statement will show us the change from that beginning balance to that ending balance. And now notice here at the bottom, we've got a note, we're showing the non cash activities. So it says we purchased equipment by issuing a note payable in the amount of $20,000. So it's giving you that extra information about a non cash activity. Cool. Alright. So this is how the statement of cash flows is set up. You might want to go back and check this out after we've discussed each section in detail. Okay, so let's go ahead and start with the operating section in the next video.