Accounting and Finance for Lawyers

Cash Flow

Cash flows show a business's increase or decreases in cash.

Cash flows are divided into three categories based on their origins:

  1. Operating activities
    • The normal ways you get money
    • Includes the receipt of interest and dividends
  2. Investing activities
    • Purchases and sales of securities, investments, loans to others, and the purchase and sale of fixed assets
  3. Financing activities
    • Borrowings, issuance of stock, and repayments and dividends related to such

It can either be done by the direct method, where all journal entries are just classified when entered, or it can be done by the indirect method, where all non-cash income is taken away from net income.

To find the indirect income, take the net income and add back:

and subtract out:

  • Increases in assets
  • Decreases in liabilities