You add all the cash payments and receipts, including the amount paid to suppliers, receipts from customers, and cash distributed as salaries. In the direct method, you use the cash flow information from the operations segment of the company’s cash flow statement. There are two ways you can evaluate a company’s cash flow: the direct method and the indirect method. The differences used to make the adjustments are taken from two or more balance sheets and income statements. Non-cash items also count while calculating net income in an income statement or assets and liabilities in a balance sheet. Cash flow for non-cash items is calculated by adjusting the company’s net income based on differences in revenue, expenses, and credit over a time period. Not all financial transactions involve cash.
