[bigbuk]

I have a comprehensive list of what constitutes as operating,investing, and financing activities in relation to cashflows. The problem is when ever i get a question on whats included in a specific activity i always seem to screw it up. Does anyone have a simple clarification of whats included in each section rather than memorizing each specific event.

[okcpa2015]

This will make it pretty simple…

Current Assets/Liabilities and Income Statement items – Operating (Depreciation/Amortization is operating because they impact income).

Long-term Assets – Investing

Long-term liabilities and Equity – Financing

FAR - 91
REG - 88
AUD - 98
BEC - 88

[SIMmer Down]

Just would like to point out Depreciation and Amortization do NOT affect cash, therefore you have to make adjustments for them and other non-cash expense out of Net Income (If using Indirect Method) at the beginning of the Operating Section. They affect the I/S, but have no effect on cash flow so they must be taken out as the first line items – see example: https://www.accountingtools.com/cash-flows-indirect-method

O – “Day-to-Day” items = Current Assets/Liabilities, Interest Income/Expense, Trading Securities Income/Expense, Dividends RECEIVED

I – All Fixed Assets = Gains/Losses; Investments (Except Trading Securities), Principle portion of debt repayment (Interest portion goes to O), Acquisitions

F – Issuance of Stock or Debt Proceeds, Dividends PAID

***Notice dividends paid and received, debt repayment part of it goes to O (Interest) and part goes to I (principle)***

[bigbuk]

thanks guys, is there a difference between gain and proceeds? I see that proceeds from sale of equipment and gain on sale of equipment fall into different categories.

[leglock]

yes, there is a difference between gain and proceeds. Proceeds is what you received. So if you sold a machine for 1 mil with a book value of 700k, then your proceeds are 1 mil and your gain is 300k. this is important because you are going to report the 1 mil in investing activities, and then you are going to deduct the 300k gain in your operating.

cash flow statement accoutns for cash. in the example above, once you log the 1m cash in investing activity, cash from this transaction is completely accounted for. the issue is that the 300k gain is also included in net income. if you don't take it out, essentially, you are logging 1.3m. so deduct the noncash item which is the gain of 300k from opeating activities and then you are good to go.

depreciation expense is the same thing. it's a noncash expense included in net income. so add it back in operating.

[Author]

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