direct：
Start with Net Income
1.Adjustments to accrual-basis net income：
Add non cash loss; Less non cash gain; (of operating activities)
Net cash provided by operating activities
2.Add gains & Less loss from investing activities
-Net cash used by investing activities
3.Add gains & Less Loss from financing activities
-Net cash used by financing activities
End with Net Increase in Cash
CONCLUSION：
Differences between direct and indirect only exist when accounting for operating activities
As for Direct Method, one has to deduct inversely to get cash collected from customers and cash paid to suppliers or when other corresponding payable accounts exist, while other cash payments are directly given. Besides, all items of operating activities are listed clearly in the SCF.
When it comes to Indirect Method, one can only deduct inversely from NI to get the total amount of cash disbursed in operating activities, while the specific number of each items remain unclear due to the lack of information.
Process of Direct Method:
Cash flows from operating activities:
cash collections from customers Sales -Delta(A/Rs)
Cash Payment
To suppliers COSG+Delta(Inventory)-Delta(A/Ps)
To employees
For operating expense
For interest
For tax
Cash disbursed for operating activities
Process of Indirect Method:
cash flows from operating activities:
Net Income/Net earnings
Adjust for items do not belong to operating activities??
not considered for now
Reconcile non cash related activities:
Add: Depreciation & Amortization
Reconcile changes in non cash items:
Less:Accounts Receivable
Add:Accounts Payable
Less: Inventory
Add: Other non cash liabilities
Less: Other non cash assets
Net Cash Provided by Operating Activities
CFI & CFF should be prepared based on additional information by direct method!
Net Revenue=Net sales =/= Net Earnings=Net Income
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