Q5Managerial Economics & Financial Accounting

1. Direct Method: This method lists the actual gross cash receipts and cash payments. - Example: Cash received from customers ($+1000$) minus Cash paid to suppliers ($-400$) minus Cash paid for wages ($-200$) = Net Operating Cash Flow of $+400$.

2. Indirect Method (More Common): This method starts with the accrual-based Net Income from the P&L account and adjusts it to a cash basis. - Example: Start with Net Profit ($+300$). - Add back non-cash expenses like Depreciation ($+50$). - Adjust for changes in Working Capital: Subtract increase in Accounts Receivable ($-20$) and Add increase in Accounts Payable ($+70$). - Net Operating Cash Flow = $300+50-20+70=+400$.