Ascertainment of Cash flows from Investing Activities Video Lecture | Accountancy Class 12 - Commerce

in this video we're going to talk about
how to calculate cash flows from
investing when you're putting together a
statement of cash flows so cash flow
from investing is the net cash that's
provided or used up by the purchase or
sale of things like fixed assets for
example equipment machinery any kind of
PP&E
or could be securities
available-for-sale securities some type
of long term investment and it kind of
investment the net cash that's provided
by the sale of that investment or that
fixed asset or that's used up in buying
fixed assets or investments that's going
to go in this this cash flow from
investing category so if we think about
kind of the hierarchy with our statement
of cash flows we're going to start out
with cash flow from operations and then
we're going to have the cash flow from
investing and then the financing is
going to be the final piece so we're
concentrating right now on this this
middle component the cash flows from
investing so let's walk through an
example make it a little easier for you
to understand let's say that we've got a
company called Bob's manufacturing and
Bob's going to have the following things
happen with his company this year he's
going to sell equipment so some kind of
PPE say it's equipment that he uses is
part of property plant and equipment and
he's going to sell that for $10,000 and
he's going to have a $700 loss on that
equipment and we're going to talk about
how that's dealt with in a moment
because that's a little bit interesting
he's also going to purchase a truck and
that's going to cost $22,000 and he's
going to buy land for $34,000 so now we
want to put together that investing
section of the statement of cash flows
we want to say what's the net cash
effect from the investments that we have
so we're going to start out with this
equipment sale okay
so we've we've sold this equipment and
we've sold it for $10,000 so when we
think what's the cash effect
well our proceeds from the sale of the
equipment is $10,000 now you might think
hey that's pretty simple but but what
about this loss here how do we deal with
that well if you think about it this
loss this is just an accounting loss
right if we're just thinking on a cash
basis cash alone what happened we
receive $10,000 that's it that's the
cash effect
but this $700 loss right so this is an
accounting effect but it reduced our net
income right because it was a it was
like an expense Olmo right so it reduced
our net income on the on the income
statement so what's going to happen is
this is going to be added back but it's
going to be added back the net income as
an adjustment in the operating section
so when we do that the net cash flow
from operating that's when we actually
we add back this laws because it was an
accounting effect it's not a cash effect
and then in the investing section which
is what we're doing right now this
investing activities part we just have
the $10,000 proceeds from the sale of
equipment so we do we do factor in this
loss we actually back it out and add it
back right to get rid of it but that's
in the operating section which we're not
dealing with right now so we've got the
10,000 proceeds from the sale of
equipment that's a positive cash flow
here now we purchased a truck for
$22,000 now because we purchased it
that's it that's a negative cash outflow
so we're going to put that in
parentheses to emphasize that this is a
use of cash right this is negative we
use $22,000 and the same with the land
so land was $34,000 but we paid that and
so we're going to have negative $34,000
here so now what we do is when we cash
flows from investing activities we want
the net cash flow from investing
activities and so the net is going to be
net the 46,000 again I'm just putting
this in parentheses to emphasize that
this is a negative number what I mean by
negative is we're saying it's the net
cash used up by investing activity so
when we look at all our investing
activities for that period we actually
used more cash than what we generated
now had we had it actually been the
reverse it would have this number
actually been positive that if this was
a positive 46,000 then we would say net
cash provided by investing