I n t e r a c t I v e t e X t foundations in Accountancy/ acca financial accounting (ffa/FA) bpp learning Media is an acca approved Content Provider

Direct method: disclose major classes of gross cash receipts and gross cash payments  

(b) 

Indirect method: net profit or loss is adjusted for the effects of transactions of a non-cash nature, 

any deferrals or accruals of past or future operating cash receipts or payments, and items of 

income or expense associated with investing or financing cash flows 

(IAS 7, para. 18)  

The direct method discloses information not available elsewhere in the financial statements, which could 

be of use in estimating future cash flows. However, the indirect method is simpler, more widely used 

and more likely to be examined. 

1.8.1 Using the direct method 

There are different ways in which the information about gross cash receipts and payments can be 

obtained. The most obvious way is simply to extract the information from the accounting records.  

A proforma for the direct method is given below. 

 

 

$

 

 

$ 

Cash flows from operating activities 

 

 

Cash receipts from customers 

 

X 

 

Cash paid to suppliers and employees 

 

(X) 

 

Cash generated from operations 

 X 

 

Interest paid 

 

(X) 

 

Income taxes paid 

 

(X) 

 

Net cash from operating activities 

 

 

X 

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