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Statement of Cash Flows_ Net Cash from Operations, Investments and Financing

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Okay let's take a couple of minutes to look at this statement of cash flows in greater detail, and then I'll get into an example that brings all this together. So the statement of cash flows is a broken into three sections. The cash from operations (which you already have seen) it includes, starts off with the cash from net income and then makes adjustments up or down related to whether or not customers are paying us this month or whether they're paying us later. And then adjustments up or down depending on Accounts Payable; whether we are paying our suppliers this month or whether we are delaying payments to suppliers. The second section is cash from investing. And this is investments that the company makes. This is not investments others make in the company. So the company can make investments through by buying a building, or by buying equipment, and those things are then used for the company to generate additional cash. Cash from financing is where get bank loans and also where outside investors will purchase a stock in the company. So here's a quick example with numbers so you can see how this adds and flows. So Net Income - let's say five thousand dollars of profit this month. Accounts Recievable went up, with adversely affects our cash. Accounts Payable also went up by two thousand dollars, and when Accounts Payable goes up that improves our cash position. And then we subtotal this: 5 minus 4 plus 2 is three thousand dollars. We spent fifteen thousand dollars on a piece of equipment, so cash going out. And so total cash from investments is minus fifteen thousand. And then we took a bank loan, of ten thousand dollars so ten thousand came from the bank, that's cash in. And we also had a found put in an additional twenty-five thousand dollars worth of cash. Therefore, cash from financing is a plus thirty- five thousand dollars. Then what we do is we total each of these three sections here and so if 3 minus 15 is minus 12 plus 35 should be twenty-three thousand dollars. Cash at the beginning of the period was zero and therefore cash at the end is also twenty-three thousand dollars with the double underline. A double underline to show that we're at the end. I hope you can see that the statement of cash flows tells a pretty clear story of the comings and goings of the cash in the period. It does take a bit of practice though, particularly things like accounts receivable which seem to be a little counterintuitive. But, as you're going through it just make sure that you're asking yourself the question 'is more cash coming in, or is more cash coming out'? If cash is coming in then it's a positive value - like here - and if cash is going out - like when we spend money on equipment - then it's a negative value. If you stick by that rule of thumb that will help you get through this. And then, of course, you should just be practicing, looking at your statement of cash flows every single month. Well you're just about to graduate so one more video where we bring this all together, and then you're done. Way to go!

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Duration: 3 minutes and 50 seconds
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Language: English
License: Dotsub - Standard License
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Views: 11
Posted by: christineward on Feb 16, 2016

Statement of Cash Flows_ Net Cash from Operations, Investments and Financing

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