Direct Method of Calculating Net Cash Flow

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The direct method is an approach that analyzes the actual cash flow in an enterprise's accounts. It is based on primary accounting records, including information from the general ledger and transaction journals.

The central element of this method is the accounting of revenues from sales of products or services. The main purpose of using this method is to ensure operational control over the veterinary email list inflow and outflow of funds, which allows for effective liquidity management and maintaining the solvency of the organization.

In Russian practice, the direct method is enshrined in law: it is provided for in the official forms of reporting on cash flows, approved by Order No. 4n of the Ministry of Finance of the Russian Federation dated January 13, 2000.

The calculation of net income by the direct method is carried out by subtracting total payments from total receipts. The formula is as follows:

NDP = Receipts - Payments,

where receipts include sales proceeds, advances received and other income (for example, loans and dividends), and payments consist of operating expenses, wages, tax deductions and other payments, such as interest on loans.

Let's look at an example. During the reporting period, the Beta company received revenue from sales in the amount of 200 thousand rubles, advances from customers amounted to 15 thousand rubles, other income - 25 thousand rubles. Thus, total receipts are equal to 240 thousand rubles.

The company's cash payments included the purchase of materials for 80 thousand rubles, staff salaries - 50 thousand rubles, tax payments - 30 thousand rubles, as well as other expenses in the amount of 10 thousand rubles. Total payments amounted to 170 thousand rubles.

The calculation of the NPV will be as follows:

Net profit = 240,000 rubles - 170,000 rubles = 70,000 rubles.

This positive result indicates that the amount of net cash flow is sufficient to cover current liabilities and investments in business development.

The advantages of the direct method are obvious: it ensures transparency of financial transactions and allows managers to quickly respond to changes in cash flows. However, the method also has limitations. It does not establish a direct connection between the profit received and changes in cash, and does not take into account time factors, which can be critical in long-term financial planning.