What is cash flow from investing?

Definition

Cash flow from investing is the cash spent on long-term assets, or received when those assets are sold. On the books, this is the middle block on the Statement of Cash Flows, sitting between the operating block and the financing block.

A landscape crew reads it when they buy a used dump trailer, or when they sell an old mower. The purchase is cash out; the sale is cash in.

It is a section total, not a ledger account you debit. The statement adds the period's long-term asset purchases and sales into one figure.

Accrual books still record the fixed assets when they are bought. This block is only the cash that moved for those buys and sells.

Where it shows up

Balance sheet: Related to fixed assets going on or coming off.

P&L: Related to a later gain or loss if the asset is sold, not to the purchase itself.

Cash flow: Located between operating and financing on the Statement of Cash Flows.

See also: Statement Of Cash Flows · Capital Expenditures · Free Cash Flow

When you look at your Statement of Cash Flows, this block sits in the middle. Day-to-day cash is above it; loans and owner money sit below it.

When the figure is a large outflow, the crew bought trucks, trailers, or other long-lived tools. When it is an inflow, they sold something they used to run the jobs.

The Balance Sheet shows the trailer as a fixed asset after the buy. This block is the cash that left to put that trailer on the books.

The Income Statement does not show the purchase as an expense. A later sale may show a gain or loss; the buy itself is not a P&L event.

An asset disposal can put cash into this block if the crew sells the old mower. The gain or loss on that sale is a P&L line; the cash received is what belongs here.

How it works

The crew pays cash for a long-lived tool, and cash goes down. The other side of the entry is the fixed-asset account, not an expense.

If they finance the trailer, only the cash they actually paid sits here. The borrowed piece is a financing inflow, not an investing outflow for the full price.

Read investing cash in this order:

• List cash paid to buy or improve long-lived assets.
• List cash received from selling those assets.
• Net those movements for the investing section total.
• Keep day-to-day operating spend and loan draws out of this section.

If they sell an old asset, cash comes in. That inflow belongs in this block even if the sale also creates a gain or loss on the Income Statement.

Stay with the long-term asset cash when you read the block. Payroll and fuel are operating; a new trailer is not.

Do not treat the purchase as a hit to this month's profit. The trailer is an asset; depreciation expense will spread its cost later.

Property, plant, and equipment is often the Balance Sheet home for these buys. This block is the cash story of the same items.

Example

Green Shoulder Landscapes buys a used dump trailer for $8,000 cash in April. The crew will haul brush and soil with it for years, not resell it next week.

The books record the buy as a fixed asset and a drop in cash.

Debit: Fixed assets $8,000

Credit: Cash $8,000

That $8,000 is an investing outflow, not an operating expense. Profit for April does not drop by $8,000 because of the trailer.

The Balance Sheet now shows an $8,000 trailer in fixed assets, and cash is $8,000 lower. The middle block on the Statement of Cash Flows shows an $8,000 outflow.

If the crew had sold an old mower for $1,200 the same month, this block would net to a $6,800 outflow. The $1,200 is an investing inflow; the $8,000 is the outflow.

A later sale of the trailer for more or less than book value would put a gain or loss on the Income Statement. The cash from that sale would still belong in this block.

If they had put $2,000 down and borrowed the rest, only the $2,000 would sit here. The loan proceeds would sit in the financing block below.

Common mix-ups

Cash flow from investing is not an operating expense. Buying the trailer is an asset purchase; it does not hit this month's profit as a cost.

Cash flow from investing is not the operating block. Payroll, fuel, and collections sit above this block; long-term asset cash sits here.

Cash flow from investing is not the gain or loss on a sale. The gain or loss is a P&L line; this block is the cash that moved.

Related terms

• Statement Of Cash Flows: A statement that explains how cash moved through operating, investing, and financing activities during a period.
• Capital Expenditures: Spending to buy or improve long-lived assets.
• Asset Disposal: Removing an asset and its accumulated depreciation from the books when it is sold or retired.
• Fixed Assets: Long-lived physical assets used to run the business rather than resold.
• Free Cash Flow: Operating cash flow left after the capital spending needed to keep running.
• Gain On Sale Of Assets: The profit or loss recorded when an asset sells for more or less than book value.
• Net Change In Cash: The total increase or decrease in cash across all three cash-flow sections.
• Capital Budget: The plan for major asset purchases over a period.