Video: Operating Cash Flow - Direct Method

In this lesson, Nick Palazzolo, CPA, breaks down the direct method of calculating operating cash flows on the statement of cash flows, noting its straightforward approach that hinges on analyzing cash inflows and outflows. Using balance sheet accounts, Nick highlights how changes in receivables, unearned revenue, and other accounts can indicate the movement of cash. He sheds light on journal entries as essential tools in understanding these shifts. The concept of cash basis accounting is touched upon as Nick reinforces the pragmatic nature of the direct method—focusing solely on cash movement without the need to recognize income. Throughout the lesson, he encourages referencing actual statement of cash flows while unpacking scenarios such as calculating cash received from customers, cash paid to suppliers, and other expenses, all to better grasp the direct method's application.