Overview of Financial Statements

Read each section in this chapter, which explains the purpose of the balance sheet, income statement, and the cash flow statement. It also is a guide to where you will find financials on publicly traded companies. You should get as much practice working on these statements as you can, since they are the fundamental information on any organization. Make the connections between each financial statement. The more you understand the connectivity of these statements, the better understanding you will have of how the entire accounting system works, which is important if you want to understand the overall operations of any company.

The Statement of Cash Flows

Cash Flow from Investing

Cash flow from investing results from activities related to the purchase or sale of assets or investments made by the company.

Learning Objective

  • Distinguish investing activities that affect a company's cash flow statement from the business's other transactions

Key Points

  • Assets included in investment activity include land, buildings, and equipment.
  • Receiving dividends from another company's stock is an investing activity, although paying dividends on a company's own stock is not.
  • An investing activity only appears on the cash flow statement if there is an immediate exchange of cash.


  • investing activity
    An activity that causes changes in non-current assets or involves a return on investment.
  • merger
    The legal union of two or more corporations into a single entity, typically assets and liabilities being assumed by the buying party.
  • purchase return
    merchandise given back to the seller from the buyer after the sale in return for a refund
  • investing activities
    actions where money is put into something with the expectation of gain, usually over a longer term

One of the components of the cash flow statement is the cash flow from investing . An investing activity is anything that has to do with changes in non-current assets -- including property and equipment, and investment of cash into shares of stock, foreign currency, or government bonds -- and return on investment -- including dividends from investment in other entities and gains from sale of non-current assets. These activities are represented in the investing income part of the income statement.

Cash Flow Statement
Example of cash flow statement (indirect method)

It is important to note that investing activity does not concern cash from outside investors, such as bondholders or shareholders. For example, a company may decide to pay out a dividend. A dividend is often thought of as a payment to those who invested in the company by buying its stock. However, this cash flow is not representative of an investing activity on the part of the company. The investing activity was undertaken by the shareholder. Therefore, paying out a dividend is a financing activity.

Some examples of investment activity from the company's perspective would include:

  • Cash outflow from the purchase of an asset (land, building, equipment, etc.).
  • Cash inflow from the sale of an asset.
  • Cash outflow from the acquisition of another company.
  • Cash inflow resulting from a merger.
  • Cash inflow resulting dividends paid on stock owned in another company.

It is important to remember that, as with all cash flows, an investing activity only appears on the cash flow statement if there is an immediate exchange of cash. Therefore, extending credit to a customer (accounts receivable) is an investing activity, but it only appears on the cash flow statement when the customer pays off their debt.