This workout asks us to identify whether the following balance sheet accounts represent operating, investing or financing cash flows. Where accounts represent more than one, indicate all. So we start with cash and cash equivalents and this is actually our odd one out Cash and cash equivalents is going to be the output of a cash flow statement So it won't go into operating, investing or financing at all So onto trading asset securities. This sounds like something that we will invest in, so that's going to be an investing item Accounts receivable, we couldn't possibly deal without that in our business We offer our customers some time to pay their bills Without customers we would have no operations, so it's an operating item Inventory? Again without inventory we wouldn't sell any products So that's operating Prepaid expenses is me paying my bills earlier; operating Deferred tax assets, tricky one here. My question mark is it definitely financing? Well we don't go to the tax authorities for financing Do we invest in tax? We don't invest in tax so therefore it must be operating You only pay tax on your operating profits Other current assets, I apply the same logic. Is it definitely financing? Is it definitely investing? No, therefore it's operating Now PP&E (property, plant and equipment), bit of a tricky one this one. First I ask myself, what could make PP&E go up? And that would be capital expenditure, capital expenditure is an investing cash flow But what makes PP&E typically go down? We might actually plan for PP&E's value to go down by the same amount every year That's depreciation! Now depreciation, bit of a strange item here. That goes in the operating part of your cash flow statement So PP&E will represent two categories of cash flows Operating for depreciation and investing for capital expenditure Long-term investments, the clue's in the title. It's going to be an investing item Intangibles are going to be the same as PP&E, what makes them go up? Purchases of intangibles, investments in intangibles What makes them go down? Amortization and that's just like depreciation So purchases are investing, amortization is operating Deferred taxes non-current are going to be the same as current so that's operating We now go a little bit further down our balance sheet to accounts payable Accounts payable, that's us paying our suppliers. Suppliers are part of our core operations Accrued expense? Is where I haven't received a bill a from my supplier, I've come up with an estimate for the amount I owe my supplier. Again just like accounts payable, operating. Short-term borrowings, borrowing from the bank. That's going to be financing Long-term debt? Financing Capital leases are a debt equivalent so that's also financing Taxes payable is going to be the same as deferred tax asset. It's tax, therefore it's operating. And other current liabilities, I apply the same logic I used last time Is it definitely financing? No. Is it definitely investing? No Oh well therefore I'll put it into operating I would always check the footnotes though, if I see other current liabilities I'm always a bit sceptical Or other current assets or other non-current assets or other non-current liabilities If I see the word "other" I'd always investigate the footnotes Long-term debt? That's a financing item. Capital Leases? Financing Deferred tax liability non-current? I ignore most of those words, I focus on the word tax That's operating And other non current liabilities, because its other, I'll say that's operating Going down now to equity, all of these items are going to be financing but we will see retained earnings fitting two categories. Why is this? Well what makes retained earnings go up? That's net income And that is always reported at the top of our cash flow statement in the operating category What makes retained earnings go down? That's dividends, that's definitely a financing item