A cash flow statement is a financial document that provides an overview of a company’s cash inflows and outflows over a specific period. It is essential for assessing liquidity, financial flexibility, and overall financial health. The direct method of preparing a cash flow statement involves listing actual cash receipts and payments, making it straightforward to understand.

To prepare it using the direct method, start by identifying all cash received from customers, interest, and dividends. Next, list cash paid to suppliers, employees, and for interest and taxes. Finally, calculate the net cash from operating activities. This method provides a clear view of cash operations, reflecting real-time cash movements.