Statement of Cash Flows (Direct Method)

This video provides an overview of the Direct Method for preparing the Statement of Cash Flows.

The Statement of Cash Flows has three sections: the operating section, the investing section, and the financing section. This is true whether the direct or indirect method is used. The investing section lists the cash flows for the period that pertained to the purchase and sell of productive assets (e.g., property, plant, and equipment or long-term investments). The financing section lists the cash flows that pertained to transactions with the company's owners (issuing stock, repurchasing stock, paying dividends) or creditors (borrowing money, repaying loans). The investing section and financing section are identical regardless of whether the direct method or indirect method is used.

With the direct method, the operating section is prepared by taking the company's Income Statement and converting it to a cash-basis. The Income Statement was prepared using accrual accounting (e.g., credit sales were included in sales revenue) so to create the operating section you go line-by-line through the Income Statement and convert each line item to cash basis (e.g., sales revenue becomes cash received from customers). Non-cash charges that appear in the Income Statement (e.g., depreciation expense, amortization expense) are not included in the operating section per the Direct Method because they are non-cash charges.

Thus, the operating section prepared according to the direct method presents the company's cash receipts (e.g., cash received from customers, cash received from interest) minus the company's cash payments (e.g., cash paid to suppliers, cash paid for interest, cash paid for income taxes) to arrive at the net cash provided (or used) by operating activities (which is what Net Income would have been had the Income Statement been prepared on a cash-basis instead of an accrual-basis).—
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[mateoricucci]

dude so well explained. Next Tuesday Im having my first ever Uni final exam, and this video helped a lot.

[maxbolton]

Good video! Discussion on how to do operating activities starts at 4:41.

[CalvinHodgson]

I was wondering if the investing and financing sections were the same on the indirect and direct. It does. Thanks. My teacher was running through the example so fast I did not think about it at the time.

[wiwisjxkalnz]

omg this video is great thank you soooo much for it

[row]

This video is so in depth it can predict cash flows from the FUTURE :D

[MyFinancialFocus]

I’ve never seen an annual report with the direct method cash flow statement. Interesting.

[jdzspace]

so he doesn't tell you how he actually does the direct method. He just tell you that he's going to show you how in a future video, and this helps....how exactly?

[danorion]

Great video! @7:24 I think COGS should be 3, 000 instead of 7, 000? Thanks again!

[sulemanbutt]

Where to put the land which company sold

[hegjnif]

How about this

Net Income. 2, 000, 000
Depreciation 125, 000
Allow. For bad debts 20, 000
Increase in A/Rec. 250, 000
Decrease in Inventories 325, 000
Equipment 500, 000
Sales of Equipment 35, 000
Owner's Invest. 150, 000
Borrowed fr. Bank 175, 000
Owner's Withdrawal 70, 000
Cash, Beg. 150, 000

Direct method of statement of cash flow

Thankyou❤😊

[alainkurniawan]

Cash received from customer's numbers is from Sales (I/S) -/+ any changes in the Accounts Receivables, rite? The ones for Cash Payments are checked out. Can anybody explain where the numbers 440, 000 is from, please? Thank you.

[coryanders]

Dude, your videos are always just on the cusp of explaining a concept, but then you never really explain it. I'm three videos deep into a nest of videos where you swear that eventually you will teach how to actually calculate cash flow statement with the direct method.

[sindbad]

cash receive from customer = Net sales +beginning A/R - Ending A/R>>
+50000 - 20000 = 330000 ? COULD YOU EXPLAIN HOW BECOME 440000 (THANK YOU)