{"id":4072,"date":"2020-10-25T02:27:14","date_gmt":"2020-10-25T02:27:14","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-financialaccounting\/?post_type=chapter&#038;p=4072"},"modified":"2020-11-18T17:59:42","modified_gmt":"2020-11-18T17:59:42","slug":"cash-flows-from-operations-direct-method","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-clinton-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":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li style=\"font-weight: 400;\">Calculate cash flows from operating activities by the direct method<\/li>\r\n<\/ul>\r\n<\/div>\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\">\r\n  <caption>Rumble Corp.\r\n    Statement of Cash Flows\r\n    for 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>\r\n      <\/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\">\r\n        <span class=\"u-sr-only\">Single Line<\/span>\r\n        4,800\r\n      <\/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\">\r\n        <span class=\"u-sr-only\">Single Line<\/span>\r\n        $2,790\r\n      <\/td>\r\n    <\/tr>\r\n<\/tbody>\r\n<\/table>\r\n\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\nHere is a summary of how the statement of cash flows would be prepared using the direct method:\r\n\r\nhttps:\/\/youtu.be\/Xy-yDw0gsgc\r\n<div class=\"textbox tryit\">\r\n<h3>practice question<\/h3>\r\nhttps:\/\/assessments.lumenlearning.com\/assessments\/23841\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li style=\"font-weight: 400;\">Calculate cash flows from operating activities by the direct method<\/li>\n<\/ul>\n<\/div>\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 \/>\n    Statement of Cash Flows<br \/>\n    for 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>\n      <\/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\">\n        <span class=\"u-sr-only\">Single Line<\/span><br \/>\n        4,800\n      <\/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\">\n        <span class=\"u-sr-only\">Single Line<\/span><br \/>\n        $2,790\n      <\/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<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\" id=\"oembed-1\" title=\"Intro to Cash Flow Statements | Direct Method\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/Xy-yDw0gsgc?feature=oembed&#38;rel=0\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<div class=\"textbox tryit\">\n<h3>practice question<\/h3>\n<p>\t<iframe id=\"lumen_assessment_23841\" class=\"resizable\" src=\"https:\/\/assessments.lumenlearning.com\/assessments\/load?assessment_id=23841&#38;embed=1&#38;external_user_id=&#38;external_context_id=&#38;iframe_resize_id=lumen_assessment_23841\" frameborder=\"0\" style=\"border:none;width:100%;height:100%;min-height:400px;\"><br \/>\n\t<\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-4072\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Cash Flows from Operations (Direct Method). <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">All rights reserved content<\/div><ul class=\"citation-list\"><li>Intro To Cash Flow Statements: Direct Method. <strong>Authored by<\/strong>: Accounting Stuff. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"https:\/\/youtu.be\/Xy-yDw0gsgc\">https:\/\/youtu.be\/Xy-yDw0gsgc<\/a>. <strong>License<\/strong>: <em>All Rights Reserved<\/em>. <strong>License Terms<\/strong>: Standard YouTube License<\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":90270,"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\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-4072","chapter","type-chapter","status-publish","hentry"],"part":850,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/4072","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/users\/90270"}],"version-history":[{"count":5,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/4072\/revisions"}],"predecessor-version":[{"id":5622,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/4072\/revisions\/5622"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/parts\/850"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapters\/4072\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/media?parent=4072"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/pressbooks\/v2\/chapter-type?post=4072"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/contributor?post=4072"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-clinton-financialaccounting\/wp-json\/wp\/v2\/license?post=4072"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}