Wize University Introduction to Financial Accounting Textbook > The Cash Flow Statement
Operating Activities Section (Direct Method)
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Operating Activities (Direct Method)
The direct method of preparing the operating activities section of the cash flow statement uses actual inflows an outflows of cash to determine the amount of cash generated by a business's primary operations.
Important Formulae
Cash collected from customers = Net Sales + Change in Unearned Revenue – Change in Accounts Receivable
Purchases = Cost of Goods Sold + Change in Inventory
Cash paid to suppliers = Purchases – Change in Accounts Payable
Cash paid to employees = Salaries and Wages Expense – Change in Salaries and Wages Payable
Cash paid operating expenses = Operating Expenses – Change in Accrued Liabilities
Cash paid for interest = Interest Expense – Change in Interest Payable
Cash paid for income taxes = Income tax expense – Change in income tax payable
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Example: Operating Activities (Direct Method)
The following financial statements are available for ABC Corporation for the years ended December 31st, 2024 and 2025.
Prepare in proper form the operating activities section of the statement of cash flows using the direct method.
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Practice: Operating Activities (Direct Method)
The following financial statements are available for KG Corp. for the year ended December 31st, 2020:
Additional Information
Prepare in proper form the operating activities section of the statement of cash flows using the direct method.