Cash Flow Methods Comparison
Compare direct and indirect operating cash flow from the same period, reconcile any gap and choose the method that fits your records.
Comparison Inputs
Use one reporting period and one currency across both methods. Positive working-capital changes mean an increase.
Enter a decrease in receivables, inventory or payables as a negative number. The formula applies the correct cash direction.
Method Breakdown
Cash outflows and cash-reducing adjustments appear as negative contributions.
| Line | Contribution | Running Result |
|---|
Diagnostic Scenarios
Each row changes one input only, so the new gap shows which side of the reconciliation must also be reviewed.
| Scenario | Direct Method | Indirect Method | Absolute Gap |
|---|
Reconciliation Workflow
Match datesUse the same opening and closing date for all 10 monetary inputs.
Build direct cashTotal actual operating receipts and payments from bank and cash records.
Bridge profitAdd non-cash charges and apply the signed receivables, inventory and payables changes.
Investigate the gapTrace missing cash, cut-off and classification differences before choosing a presentation.
What the Two Cash Flow Methods Compare
Both routes target operating cash flow for the same period. The direct route uses 4 cash totals in this tool; the indirect bridge uses 6 profit and balance-sheet adjustments.
The IFRS Foundation's IAS 7 summary places operating cash flow alongside 2 other classes—investing and financing—which this tool deliberately excludes.
Build the Direct View from Cash Records
GOV.UK's company-record guidance says records include money received and spent. Use bank and cash records for the same start and end dates.
A £10,000 invoice that remains unpaid is not £10,000 of customer cash receipts for this calculation. The direct result is receipts plus other operating receipts, less the 2 payment totals.
Read the Indirect Profit Bridge
An increase in receivables of £4,000 reduces cash relative to profit by £4,000; an increase in payables of £7,000 adds £7,000 because the related cash has not yet left.
A £6,000 depreciation or other non-cash charge is added back because it reduced profit without being a current-period cash payment. Enter a decrease as a negative change so the formula reverses its direction.
Reconcile Before Choosing a Presentation
The same underlying period should converge on one operating cash amount. A £2,000 gap between £15,000 direct and £13,000 indirect is 13.3% of the larger result, so it enters the red review band.
The 1-unit reconciliation tolerance and 5% amber band are CoryVu review conventions, not IFRS thresholds. A £0 gap still does not prove every transaction is classified correctly.
Cash conversion compares direct operating cash with the absolute profit amount. £30,000 divided by £21,000 is 142.9%, meaning cash exceeded profit in that period; it is not a quality score or target. When profit is £0 the percentage is unavailable because division by 0 is not meaningful.
Use Scenarios as Diagnostic Tests
Lowering £150,000 of customer receipts by 10% removes £15,000 from the direct result. Increasing £118,000 of supplier/staff payments by 10% removes £11,800.
If the indirect bridge does not change with those scenarios, the resulting gap shows which receivables, payables, profit or other adjustment may need review. The 3 rows are isolated tests, not forecasts.
Method and Limits
The method assumes every input covers the same reporting period and uses one consistent currency. Direct cash is compared with a 6-line profit bridge; neither result includes investing or financing cash flow.
Keep a supporting schedule for all 10 monetary inputs so a reviewer can trace each total back to the period's records.
- No transaction classification. The tool cannot decide whether a movement belongs in operating, investing or financing activities.
- No tax or foreign-currency engine. It does not calculate tax, exchange differences or country-specific filing adjustments.
- No bank reconciliation. It does not compare the result with opening and closing bank balances or restricted cash.
- No statutory statement. The outputs are a diagnostic comparison, not an IAS 7-compliant statement or professional sign-off.
Method and figures checked using source evidence already stored in the repository.
Sources
- IFRS Foundation — IAS 7 Statement of Cash Flows (cash-flow activity classes; source evidence checked 2026-09-28)
- GOV.UK — Company and accounting records (records of money received and spent; source evidence checked 2026-09-28)
Last updated: . Results are estimates based on the cash, profit and adjustment totals supplied.
About this tool
Created and maintained by CoryVu. Read how we check our tools and consult the sources and assumptions on this page.
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