We can use the items in the balance sheet to fill up the items on the cash flow statement What we need to do is go through each of the items on the balance sheet to worko ut where the cash flow should sit on the cash flow statement There are three categories on the cash flow statement and we'll start with the first one: operating cash flows So starting from the top left, you can see items such as accounts receivable I have to ask myself, is this a part of operations? Well absolutely yes In order to try and attract customers, I offer them a credit period, which then means that they owe me money If I didn't offer them that credit period, I might not have any customers. Customers are a key part of operations Similarly with inventories, if I didn't hold a stock of inventory, I have nothing to sell Another key part of operations Slightly tricky ones are those which have the word "other" at the start Such as "Other current assets", "Other long-term assets" and "Other long-term liabilities" It can be a bit trickier deciding whether these are definitely operating activities and I would definitely go to the footnotes to check that these are indeed operating in nature Next we look at the investing cash flows. Now these can be either nothing to do with operations or can be looking to invest in the long term operations of the business. But the keyword is invest So short term investments? That's not really to do with operations but it's cash that's been lying around (so we maybe bought some stocks and shares) Net PP&E however, is definitely looking to invest in the long-term operations of the business By buying machinery and equipment But again, I'm investing in it so it's an investing cash flow Our third category are financing flows and these are going to be looking at cash inflows or outflows to do with your financiers So maybe we borrowed some money via some short-term debt (notes payable, commercial paper) or maybe we paid them off If we look at common stock or additional paid in capital Maybe we have had a share purchase, we've repurchased some shares so cash has gone out Alternatively we may of had a share issue The share issue means we've sold some shares, cash has come in Now you may have noticed that some of those items fell under more than one category If we look at retained earnings, retained earnings is under the operating cash flows and the financing flows Why is this the case? Well retained earnings may go up due to net income or profit that's been reinvested in the business Net income or profit would sit in your operating cash flow part of the cash flow statement However retained earnings may be reduced due dividends paid Dividends paid are a cash flow involving financiers and that will go under the financing cash flow part of the cash flow statement A similar thing happens with net PP&E Net PP&E goes up due to capital expenditure, that's investing in the long-term operations That will go part of your investing cash flows But net PP&E can go down due to depreciation and depreciation sits in your operating flows Intangibles are very similar, purchases of intangibles are investing Where as amortization of intangibles is operating If we now look at all the items that we put into our cash flow statement, we see that there's only one item left and that's cash Why is this left out? Well if I think about the next line item down (short-term investments), I'm looking for cash flows involving short-term investments Accounts receivable I'm looking for cash flows involving accounts receivables Inventories? Cash flows involving inventories etc If we add up all those cash flows, what we'll get to is cash at the end of period So we don't include cash in the cash flow statement because all of the other items are inputs to your cash flow statements and cash is the output of all of that