What is Direct method (statement of cash flows)?
In short
The direct method presents operating cash flow as the major classes of gross cash receipts and payments, such as cash collected from customers, cash paid to suppliers and employees, and interest and taxes paid.
Key takeaways
- It gives the same total operating cash flow as the indirect method.
- Companies that use it must also present a reconciliation of net income to operating cash flow.
- Cash collected from customers = sales − increase in receivables (or + decrease).
Where it's tested
FAR: Statement of Cash Flows — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Net income is $150,000. Depreciation expense was $30,000, there was a $10,000 gain on sale of equipment, accounts receivable increased $20,000, and accounts payable increased $15,000. What is net cash provided by operating activities under the indirect method?