[husker4]

Does anyone have a good way of remember how Cash Flows are classified between Operating, Financing and Investing? These questions always seem to trick me up, and I feel like they shouldn’t. Anything is appreciated!

[ofarooqi]

Anything related to income statement accounts or related to working capital (changes in current assets and current liabilities etc.) goes to “Operating Activities”

Anything related to non-current assets (PP&E) goes to investment (except for gain or loss on sale which obviously is an income statement account hence goes to operating activity)

Finally, anything related to non current liability (like your long-term debt) and stockholder's equity goes to your financing activity.

Hope this helps, also dividend received goes to operating while dividend paid goes to financing, also all kinds of interest (expense or income) goes to operating. (there are different rules for IFRS and Govt accounting, look them up)

5/14/2015 - FAR - 92
5/20/2015 - REG - 92
5/24/2015 - AUD - 96
5/28/2015 - BEC - 94

[Anonymous]

Ok- I'm gonna do that for me and for you, so that we can both pass this section.

My source is Becker:

Indirect method:

OPERATING:

The items adjusted in the operating section are CLAD:

C: Current assets and liabilities

L: Losses and gains

A: Amortization and depreciation

D: deferred items

Net income per I/S (accrual)

+ depreciation & amortization & discounts

+ losses

– gains & premiums

– equity earnings

– increase in current assets (you are buying stuff)

+ decrease in current assets (you are selling stuff)

+ increase in current liabilities (you are borrowing money)

– decrease in current liabilities (you are paying off debt)

---

Notice that CL have a direct relationship with CFO, and CA have an inverse relationship with CFO.

INVESTING:

It's all about change in non-current assets, and the change in non-current assets have an inverse relationship with CFI.

+decrease in non-current assets (you are selling)

– decrease in non-current assets (you are buying)

FINANCING:

It's all about change in long term debt and equity, and the change here have a direct relationship with CFF.

+ increase in long-term debt or equity (you are borrowing money or issuing stock and getting proceeds)

– decrease in long-term debt or equity (you are paying off debt)

I hope this helps. It's from my memory, so I hope it's 100% accurate.

[okcpa2015]

Transactions related to Current Assets and Liabilities relate to Operating Activities.

Transactions related to Long-term Assets relate to Investing activities.

Transactions related to Long-term Debt and Equity relate to Financing activities.

That's the easiest way that I remembered them all.

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

[Author]

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