Question
The following information was taken from the records of Silvergate Products for the year ended December 31, 2025. Item Amount Sales Revenue $480,000 Cost of Goods Sold 288,000 Salaries and Wages Expense 74,000 Rent Expense 18,000 Insurance Expense 6,
Statements in this challenge
- Income StatementIncome Statement
- Cash Flow StatementCash Flow
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