{"id":349,"date":"2024-09-06T16:48:57","date_gmt":"2024-09-06T16:48:57","guid":{"rendered":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/cash-flows-from-operations-direct-method\/"},"modified":"2024-09-13T02:31:28","modified_gmt":"2024-09-13T02:31:28","slug":"cash-flows-from-operations-direct-method","status":"publish","type":"chapter","link":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/chapter\/cash-flows-from-operations-direct-method\/","title":{"raw":"Cash Flows from Operations (Direct Method)","rendered":"Cash Flows from Operations (Direct Method)"},"content":{"raw":"<section class=\"textbox learningGoals\" aria-label=\"Learning Goals\">\r\n<ul>\r\n \t<li>Calculate cash flows from operating activities by the direct method<\/li>\r\n<\/ul>\r\n<\/section>&nbsp;\r\n\r\nThe direct method of presenting the statement of cash flows presents the specific cash flows associated with items that affect cash flow. Items that typically do so include:\r\n<ul>\r\n \t<li style=\"font-weight: 400;\">Cash collected from customers<\/li>\r\n \t<li style=\"font-weight: 400;\">Interest and dividends received<\/li>\r\n \t<li style=\"font-weight: 400;\">Cash paid to employees<\/li>\r\n \t<li style=\"font-weight: 400;\">Cash paid to suppliers<\/li>\r\n \t<li style=\"font-weight: 400;\">Interest paid<\/li>\r\n \t<li style=\"font-weight: 400;\">Income taxes paid<\/li>\r\n<\/ul>\r\nLooking at only the operating section of our Rumble Corp. statement of cash flows:\r\n<table class=\"fin-table acctstatement\"><caption>Rumble Corp.\r\nStatement of Cash Flows\r\nfor the year ended 12\/31\/x1<\/caption>\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Amount<\/th>\r\n<th scope=\"col\">Total<\/th>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<th colspan=\"2\" scope=\"col\"><i>In millions<\/i><\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Cash flows from operating activities<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cash receipts from customers<\/td>\r\n<td class=\"r\">$ 45,800<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cash paid to suppliers<\/td>\r\n<td class=\"r\">(29,800)<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cash paid to employees<\/td>\r\n<td class=\"r\">(11,200)<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cash generated from operations<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>\r\n4,800<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr aria-hidden=\"true\">\r\n<td colspan=\"3\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Interest paid<\/td>\r\n<td class=\"r\">(310)<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Income taxes paid<\/td>\r\n<td class=\"r\">(1,700)<\/td>\r\n<td class=\"r\"><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Net cash from operating activities<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>\r\n$2,790<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nUnlike the income statement, statement of owner\u2019s equity, and balance sheet, these numbers are not readily available from the trial balance. However, most reputable accounting information systems do a credible job of tracking these transactions in order to automatically produce the statement of cash flows along with the other required financial statements. If your company\u2019s computerized system does not have that capability, you\u2019ll have to dig into the accounting records to find these numbers, or resort to the indirect method that we\u2019ll study next.\r\n\r\n<section class=\"textbox watchIt\" aria-label=\"Watch It\"><p>Here is a summary of how the statement of cash flows would be prepared using the direct method:<\/p><p><iframe width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/Xy-yDw0gsgc\"><\/p><p>You can view the <a href=\"https:\/\/course-building.s3-us-west-2.amazonaws.com\/Financial+Accounting\/Transcripts\/IntroToCashFlowStatementsDirectMethod_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for \"Intro to Cash Flow Statements | Direct Method\" here (opens in new window)<\/a>.<\/p>\r\n\r\n<\/section><section class=\"textbox tryIt\" aria-label=\"Try It\">[ohm2_question hide_question_numbers=1]25233[\/ohm2_question]<\/section>","rendered":"<section class=\"textbox learningGoals\" aria-label=\"Learning Goals\">\n<ul>\n<li>Calculate cash flows from operating activities by the direct method<\/li>\n<\/ul>\n<\/section>\n<p>&nbsp;<\/p>\n<p>The direct method of presenting the statement of cash flows presents the specific cash flows associated with items that affect cash flow. Items that typically do so include:<\/p>\n<ul>\n<li style=\"font-weight: 400;\">Cash collected from customers<\/li>\n<li style=\"font-weight: 400;\">Interest and dividends received<\/li>\n<li style=\"font-weight: 400;\">Cash paid to employees<\/li>\n<li style=\"font-weight: 400;\">Cash paid to suppliers<\/li>\n<li style=\"font-weight: 400;\">Interest paid<\/li>\n<li style=\"font-weight: 400;\">Income taxes paid<\/li>\n<\/ul>\n<p>Looking at only the operating section of our Rumble Corp. statement of cash flows:<\/p>\n<table class=\"fin-table acctstatement\">\n<caption>Rumble Corp.<br \/>\nStatement of Cash Flows<br \/>\nfor the year ended 12\/31\/x1<\/caption>\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Amount<\/th>\n<th scope=\"col\">Total<\/th>\n<\/tr>\n<tr>\n<td><\/td>\n<th colspan=\"2\" scope=\"col\"><i>In millions<\/i><\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Cash flows from operating activities<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Cash receipts from customers<\/td>\n<td class=\"r\">$ 45,800<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr>\n<td>Cash paid to suppliers<\/td>\n<td class=\"r\">(29,800)<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr>\n<td>Cash paid to employees<\/td>\n<td class=\"r\">(11,200)<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr>\n<td>Cash generated from operations<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><br \/>\n4,800<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr aria-hidden=\"true\">\n<td colspan=\"3\"><\/td>\n<\/tr>\n<tr>\n<td>Interest paid<\/td>\n<td class=\"r\">(310)<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr>\n<td>Income taxes paid<\/td>\n<td class=\"r\">(1,700)<\/td>\n<td class=\"r\"><\/td>\n<\/tr>\n<tr>\n<td>Net cash from operating activities<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><br \/>\n$2,790<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Unlike the income statement, statement of owner\u2019s equity, and balance sheet, these numbers are not readily available from the trial balance. However, most reputable accounting information systems do a credible job of tracking these transactions in order to automatically produce the statement of cash flows along with the other required financial statements. If your company\u2019s computerized system does not have that capability, you\u2019ll have to dig into the accounting records to find these numbers, or resort to the indirect method that we\u2019ll study next.<\/p>\n<section class=\"textbox watchIt\" aria-label=\"Watch It\">\n<p>Here is a summary of how the statement of cash flows would be prepared using the direct method:<\/p>\n<p><iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/Xy-yDw0gsgc\"><\/iframe><\/p>\n<p>You can view the <a href=\"https:\/\/course-building.s3-us-west-2.amazonaws.com\/Financial+Accounting\/Transcripts\/IntroToCashFlowStatementsDirectMethod_transcript.txt\" target=\"_blank\" rel=\"noopener\">transcript for &#8220;Intro to Cash Flow Statements | Direct Method&#8221; here (opens in new window)<\/a>.<\/p>\n<\/section>\n<section class=\"textbox tryIt\" aria-label=\"Try It\"><iframe loading=\"lazy\" id=\"ohm25233\" class=\"resizable\" src=\"https:\/\/ohm.one.lumenlearning.com\/multiembedq.php?id=25233&theme=lumen&iframe_resize_id=ohm25233&source=tnh\" width=\"100%\" height=\"150\"><\/iframe><\/section>\n","protected":false},"author":6,"menu_order":7,"template":"","meta":{"_candela_citation":"[{\"type\":\"original\",\"description\":\"Cash Flows from Operations (Direct Method)\",\"author\":\"Joseph Cooke\",\"organization\":\"Lumen Learning\",\"url\":\"\",\"project\":\"\",\"license\":\"cc-by\",\"license_terms\":\"\"},{\"type\":\"copyrighted_video\",\"description\":\"Intro To Cash Flow Statements: Direct Method\",\"author\":\"Accounting Stuff\",\"organization\":\"\",\"url\":\"https:\/\/youtu.be\/Xy-yDw0gsgc\",\"project\":\"\",\"license\":\"arr\",\"license_terms\":\"Standard YouTube License\"}]","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"part":342,"module-header":"- Select Header -","content_attributions":[{"type":"original","description":"Cash Flows from Operations (Direct Method)","author":"Joseph Cooke","organization":"Lumen Learning","url":"","project":"","license":"cc-by","license_terms":""},{"type":"copyrighted_video","description":"Intro To Cash Flow Statements: Direct Method","author":"Accounting Stuff","organization":"","url":"https:\/\/youtu.be\/Xy-yDw0gsgc","project":"","license":"arr","license_terms":"Standard YouTube License"}],"internal_book_links":[],"video_content":null,"cc_video_embed_content":{"cc_scripts":"","media_targets":[]},"try_it_collection":null,"_links":{"self":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/349"}],"collection":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/users\/6"}],"version-history":[{"count":4,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/349\/revisions"}],"predecessor-version":[{"id":1062,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/349\/revisions\/1062"}],"part":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/parts\/342"}],"metadata":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/349\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/media?parent=349"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=349"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/contributor?post=349"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/content.one.lumenlearning.com\/financialaccounting\/wp-json\/wp\/v2\/license?post=349"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}