Reporting the Statement of Cash Flows in Accounting?

I am a little confused in the operating activities area. Why am I dealing with liabilities and assets when reporting cash flow? And why would I ADD and increase in liabilities, and SUBTRACT a decrease in liabilities?

Same with the assets.. Thank you. Current assets and current liabilities include accounts such as Accounts Receivable, Accounts Payable, Inventory, Prepaid Expenses, etc. All of which are directly related to the day-to-day operations of a business. As far as the second part of your question, if current liabilities increase it means that more cash is being held back instead of being used to pay the bills, so this increases cash flow.

If current liabilities decrease, it means that more cash is being used to pay the bills, so cash flow decreases. It works just the opposite with current assets such as Accounts Receivable and Inventory.

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