Direct method (cash flows)
The direct method reports major classes of operating cash receipts and payments, such as cash collected from customers and cash paid to suppliers and employees. It converts accrual-based trading figures into cash amounts by adjusting for receivables, payables, inventory and non-cash items as needed. Investing and financing sections are presented separately rather than folded into operating receipts or payments.
Worked example
With no other adjustments, revenue of $100,000 and a $5,000 increase in receivables imply customer cash receipts of $95,000.
Common mistake
Do not report sales revenue as customer cash receipts without checking credit balances and timing differences.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FA | Direct | September 2026–June 2027 |
| ACCA | K1 | Direct | July 2027–August 2028 |
| CIMA | BA3 | Direct | Official assessment-window verification pending |
| FIA | FFA | Direct | September 2026–June 2027 |
Related terms
Also called: Direct method, Direct cash flow method