Direct Method for Operating Activities
Reporting Actual Cash Receipts and Payments
The direct method reports specific categories of cash received and cash paid during the period. It presents actual cash collections from customers and actual cash payments to suppliers, employees, lenders, and taxing authorities.
- Cash received from customers.
- Cash paid to suppliers.
- Cash paid for operating expenses.
- Interest paid.
- Income taxes paid.
Note
Companies using the direct method must also provide a reconciliation from net income to operating cash flow.
Summary
The direct method presents actual operating cash inflows and outflows.