What is the starting point for converting operation cash flows from the indirect method to direct method? accrual amounts of revenues and expenses are converted into cash flow amounts of receipts and payments by adjusting for changes in working capital accounts.non-operating and non-cash items are removed from aggregated revenues and expense amounts and the remaining items are broken down into relevant cash flow items and.net income is disaggregated into total revenues and total expenses.In converting cash flows from the indirect method to the direct method, the following three-step process is applied: Steps in Converting Cash Flows from Indirect Method to Direct Method The accuracy of this conversion will depend on the accuracy of the adjustments that are made using data that is available in published financial reports. It is possible to convert the indirect method to the direct method. This may arise from the need to review, for example, trends in the cash the company paid to its suppliers and the cash it received from its customers. However, users of its financial statements may desire to review the direct-format cash flow from operations. Sometimes, a company may prepare the cash flow from the operations section of its cash flow statement using the indirect method.
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