Question
The income statement of Silverpine Wholesale Ltd and additional information for 2025 are shown below. Income Statement — For the Year Ended December 31, 2025 Sales Revenue 420,000 Cost of Goods Sold (252,000) Gross Profit 168,000 Salaries and Wages E
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 7 — Statement of Cash Flows
The direct method reports actual operating cash receipts and payments by category rather than reconciling from profit. Each line is built by converting an accrual figure to cash — revenue adjusted for the movement in receivables, purchases adjusted for the movements in inventory and payables, and so on.
Common mistakes
- Reporting the accrual amount unchanged because the related working-capital account happened to be given.
- Omitting a supporting schedule when the question asks for the workings behind each converted line.
- Producing operating cash flow that does not agree with what the indirect method would give — the two must reconcile.
Further readingDirect vs indirect method cash flow