Statement of Cash Flows - Lesson 3

In this video, 25.01 - Statement of Cash Flows - Lesson 3, Roger Philipp, CPA, CGMA, concludes his lecture on statement of cash flow basics by again covering operating, investing and financing activities, and then providing a handy guide for categorizing cash flows: if it concerns a current asset or current liability, it’s probably an operating cash flow; if it concerns a noncurrent asset it’s probably an investing cash flow; if it concerns a noncurrent liability or stockholders’ equity it’s probably a financing cash flow.
He cautions us to remember that if a company borrows money, it’s a financing activity; if it loans money, that’s an investing activity because the company in a sense is investing in the borrower. Roger also looks over a simple cash flow statement, explains the phrase ‘net cash provided or used,’ and shows how a statement of cash flows is like Jeopardy: we know the answer, the beginning and ending cash balance, already; what the statement of cash flows shows is how we got there - where did the cash come from, where did the cash go. Look no further if you’re trying to understand the goal or purpose of the statement of cash flows!
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Video Transcript Sneak Peek:
Just to start out, we're trying to understand the basics. We've got a statement of cash flows, we've got operating, investing, financing. Investing is LIP. Financing, very carefully defined. If it's not investing or financing what is it everybody? Operating which is kind of the catch all. A good way to kind of think of this is as follows. What is this? It's an eye chart, no, no, no. It is a balance sheet.
Generally, if it is a current asset or current liability it is operating, generally speaking. If it is a non-current asset, that would be investing. If it is a non-current liability or stock-holder's equity, that would be financing. Again, it doesn't work for everything but it's a good cheat sheet way to look at it. Again, if it's a current asset or current liability, that's operating. If it's a non-current asset, that would be investing because we are making an investment. If it is a non-current liability or stock-holder's equity that's generally financing.
For example, here's where people get confused. If I borrow money, what is that? Money is coming in so I'm borrowing money, that's a non-current liability. If I'm loaning money to you, I kind of have an investment in you, that's a note receivable. That's an investing activity.
So again, if I borrow money that's financing. If I loan you money, that's what? If I loan you money I now have an investment in you, that's investing. What about the interest? Interest received, interest paid, dividends received are what? Operating. What about dividends paid are what? Financing. So again, I just want you to kind of start to get that settled up in your head.
If you look down you'll see a statement of cash flows. It says "Roger Coe, statement of cash flows". "Cash flows from operating", and then it says, "Debit, credit and change". Sometimes you'll have the debit, the credit, you'll have a change column. Sometimes they'll put them all in one column just as a debit or credit, but a debit credit change.

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