[animalwithin]

One area which I am weak at is the statement of cash flows, so I have a few seemingly basic questions for you all for clarification.

If I buy PPE for $100, that would be a decrease in cash flows from Investing Activities. Where does the corresponding increase in PPE go? The balance sheet?

And if I sell PPE for $100 with a gain of $50, the increase in cash flows from Investing Activities is the full $100 while the gain of $50 goes to Operating Activities?

[74phoenix]

Corresponding increase in PPE goes to inventory on the balance sheet.

The indirect method begins with net income. Since the effect of a gain is an increase in net income and a loss is a decrease in net income, you will subtract a gain and add a loss in the operating activities section. The cash received from the sale is reported as an investing activity.

Graduated 05/2016.
NY CPA Candidate.
Public accounting.
FAR COMING UP 07/07/2016 !! GOD HELP ME.

[animalwithin]

Hmmm. So we subtract gains of PPE sales from Operating Activities because it's already accounted for in the cash we received which is reported in Investing Activities?

[74phoenix]

I believe so – otherwise it would be double counting!

Graduated 05/2016.
NY CPA Candidate.
Public accounting.
FAR COMING UP 07/07/2016 !! GOD HELP ME.

[Recked]

PPE goes to an asset account on the balance sheet, not Inventory.
Only mentioning this because it will mess up the rest of the cash flow if you put PPE to Inventory.
The Roger course had a great example of the cash flow in the videos. I struggled with it and watched it multiple times before it finally started to click.
You might be able to find it on youtube.

[Tommy]

Definitely not Inventory! PPE is a fixed asset. The ONLY time you'd consider putting PPE in inventory is if you're in the business of selling PPE.

[animalwithin]

Thank you all for the replies, it's making a little more sense now. @Recked, I have Roger, I'll check those videos out!

[Recked]

Excellent. The one with all the T accounts on the right side of the white board and the cash flow on the left side.
I watched that one so many times, writing it all down as I went along, and then redid that problem over and over until I finally got it right.
It was a real struggle for me. I don't even remember if it was on the exam or not, but I know I was prepared for it just in case it was.

[Author]

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