Accounting › Section O · Cash flows and statement analysis › Topic O.4
The direct method
Instead of adjusting net income, the direct method lists the cash a company actually collected and paid in its operations. It reads like a cash income statement, and done correctly it lands on exactly the same operating total as the indirect method.
In this topic
- Cash receipts and payments, line by line
- Converting accrual amounts to cash
- Cash collected from customers
- Cash paid to suppliers
- Operating expenses, interest and taxes
- Worked example: Tidewater by the direct method
- Proving the two methods agree
- Worked example: suppliers and advance payments
- Why so few companies use it
- Common mistakes to avoid
- Key takeaways
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