## Direct Method: Cash Flow from Operating Activities
Under the direct method, major classes of gross cash receipts and gross cash payments are disclosed directly — no need to reconstruct a Debtors or Creditors ledger if the cash figures are already available.
### When to use Direct Method without a ledger
If the question provides:
- Cash sales separately, AND
- Cash received from debtors (or total receipts are identifiable)
then the Debtors ledger reconstruction is not required. Similarly, if opening Debtors balance is not given, you cannot prepare the ledger — use the given cash figures directly.
### Format
| Line Item | Amount |
|---|---|
| A. Cash Flow from Operating Activities | |
| Cash Sales | xxx |
| Cash received from Trade Receivables (Debtors) | xxx |
| Total Cash Inflows (A) | xxx |
| Cash paid to Trade Payables (Purchases) | (xxx) |
| Payment for consumables / other expenses | (xxx) |
| Payments to employees | (xxx) |
| Income Tax paid | (xxx) |
| Net CF from Operating Activities | xxx |
### Key Logic for Cash Paid to Suppliers
Use the Trade Payables ledger to find the forcing figure (cash paid):
```
Trade Payables Ledger
Dr side: Cash paid (forcing) + Closing Balance
Cr side: Opening Balance + Credit Purchases
```
Credit Purchases = Total Purchases − Cash Purchases (if applicable)
### Cash Flow from Investing Activities (B)
- Purchase of machine for cash → outflow
- Sale of investments → inflow (use actual cash proceeds, not book value)
### Cash Flow from Financing Activities (C)
- Redemption of preference shares → outflow
- Issue of equity shares (including premium) → inflow
- Dividend paid → outflow
- Interest paid on debentures → outflow
### Closing CCE Reconciliation
```
Opening CCE
+ Net CF from Operations (A)
+ Net CF from Investing (B)
+ Net CF from Financing (C)
= Closing CCE
```