Direct method involves which of the following?

Direct method involves which of the following?

• A. Net cash flow from operating activities
• B. Cash receipts from customers and cash payments to suppliers
• C. Depreciation expense
• D. Financing cash outflows

Answer: (B)

Direct method presents operating cash flows as actual cash movements, listing the cash that comes in and the cash that goes out. The description that matches this is cash receipts from customers and cash payments to suppliers, since it shows the gross inflows and outflows from operating activities. Depreciation expense is a non‑cash item and is not part of the direct method’s cash receipts/payments (it would appear as an adjustment in the indirect method). Financing cash outflows belong to financing activities, not operating activities, so they’re not part of the direct method’s operating section.

Direct method presents operating cash flows as actual cash movements, listing the cash that comes in and the cash that goes out. The description that matches this is cash receipts from customers and cash payments to suppliers, since it shows the gross inflows and outflows from operating activities. Depreciation expense is a non‑cash item and is not part of the direct method’s cash receipts/payments (it would appear as an adjustment in the indirect method). Financing cash outflows belong to financing activities, not operating activities, so they’re not part of the direct method’s operating section.