Concept #1: Direct Method: Cash Received from Customers
Concept #2: Direct Method: Cash Paid to Suppliers
Concept #3: Direct Method: Cash Paid for Operating Expenses
Example #1: Direct Method
Practice: ABC Company is preparing its Statement of Cash Flows using the direct method. The accountant gathered the following information: cash paid to suppliers was $140,000; sales revenue was $350,000; Accounts Receivable increased by $10,000 during the year; depreciation expense was $15,000; operating expenses totaled $80,000; Prepaid Expenses decreased by $8,000 during the year; and a loss on the disposal of plant assets equaled $6,000. What is the cash flow provided by operating activities?
Practice: During the year, cash paid to suppliers was $340,000. Cash received from customers was $580,000. Cash paid for operating expenses totaled $64,000. Depreciation expense totaled $16,000. The company also purchased equipment for $35,000. Using the direct method, what is the cash provided by operating activities?