This workout says, using the information below produce a cash flow statement for year 1 We've got two balance sheets, one for year 0 and one for year 1 And beneath this we have a few line items that will be included in an income statement Net income, depreciation and dividends I want to start by categorizing each of the items in my balance sheet into the cash flow statement Are they operating, investing, financing or more than one? But I know that cash is going to be the output for my cash flow statement. So I don't need to worry about that. Accounts receivable is going to be operating in nature Net PP&E, it goes up due to capex which is investing But it goes down due to depreciation which is operating Accounts payable is an operating item Short term debt is financing Long-term debt is financing and equity also financing The final items that we've got further down, net income That's going to be a operating item Depreciation also operating and we mentioned that further up when we looked at net PP&E And lastly dividends is a financing item We're going to start out cash flow statement with net income in the operating section And I have a skeleton for my cash flow statement already started So operating items at the top here and net income starts us off Let's start by bringing each of the operating items into the operating activity section of the cash flow statements I'm going to start with depreciation And I can see immediately above that depreciation was 20, so I'm going to add that back 20 there Now there were a few more operating items, accounts receivable and accounts payable A quick look at accounts receivable. We said that had gone down, so that's going to lead positive 20 in my cash flow statement So let's put the accounts relievable in So I press equals, I go up to my accounts receivable and I take last year minus this year That's going to give me the positive 20 because I know that assets go down, that needs cash has gone up Great! Next onto accounts payable. Accounts payable, if I look slightly further up the page, I can see that accounts payable went up from 70 to 90. If a liability goes up, that's good for my cash flow (cash goes up) Basically I owed my supplier 70, I now owe my supplier 90 Great! Good for my cash flow, so cash has gone up by 20 That now finishes up my cash flow from operating activities I can sum up the items above and I can see that cash flow from operating activities comes to 79 Great! Moving onto cash flow from investing activities We have one cash flow from investing activities. That was in net PP&E and it was capital expenditure I'm going to come back to that, just as soon as we get towards the bottom So skipping over that, we now come onto our cash flow from our financing activities and there were quite a few to be included There was short term debt, long-term debt and equity Let's do the short term debt first If we look up at the short term debt, I can see that has gone up by 10. It's gone up from 10 to 20 An increase in the liability means cash has gone up, there's more cash in my bank account. Fantastic! That's gone up by 10 Next up, increase or decrease in long-term debt My long-term debt had gone from 100 down to 90 I paid off 10, that means I've had a negative cash flow Other items that we had included equity Equity's gone up from 230 to 250, that's great! More cash from my shareholders 250 less the 230 gives my an extra 20 And the last one was dividends. Now we can see dividends here, dividends are a payment out So even though it says positive 19 there, I need to think that's a cash flow out of the business and that's going to be negative 19 I add up all of my cash flows from financing activities to give me an overall cash flow there of 1 Now there was one that we skipped over. The skip over was capital expenditure We need to do a BASE analysis to calculate this. So a little bit further down the page, we need to calculate that Here I've got a little sub calculation Here's my BASE analysis, I start with beginning net PP&E, I'll add capex, subtract depreciation To get to ending net PP&E The interesting thing here is actually that we're not going to try to get to net ending PP&E (we've already got it) I want to try and get to capex So I've going to grab my beginning net PP&E from the balance sheet that we saw earlier There it is, 300 I'm going to grab my net ending PP&E of 350 I can also fill in the depreciation The depreciation was 20 So now I need a figure that's going to fill in the gap I know that my PP&E plus whatever the capex is minus 20 gives me 350 Well try to reverse that formula, I can see that's going to be 70 If I have 300 plus 70 minus 20, that will get me to the 350 So I'm going to calculate that, that's the 350 at the end. I add the 20, I subtract the 300 gives me the 70 that I needed Great! Now quick mental note, capex, is that cash flow positive or negative? It is negative, so back up we go. Capital expenditure negative 70 I've now got the three lines items I need, I've got cash flow from operating activities of 79 Investing activities negative 70 and financing activities of 1 If I add up those three cells, we get to net cash flow of 10 Now I want to check that that's correct, I got back up to my balance sheet And how much did my cash go up by? It went up by 10, thus that is correct Net cash flow was 10, the increase in my cash was 10