Five gross cash flows and one indirect reconciliation arrive at the same 447,000 in the composite outdoor-gear retailer's AC302 Unit 5 direct method comparison. Searches like "ac 302 unit 5 assignment example", "ac302 unit 5 sample" and "ac302 unit 5 example" land here.
What a finished AC302 Unit 5 direct method comparison looks like
Two operating sections side by side, a derivation schedule, and a closing page of comparison. The direct column lists cash received from customers of 4,590,000, then payments to suppliers of 2,945,000, for other operating costs of 1,002,000, for interest of 58,000 and for income taxes of 138,000, arriving at 447,000. The indirect column starts from net income of 502,000 and reaches the same figure through depreciation, discount amortization, the 16,000 gain on a sold delivery van, deferred taxes and six working capital changes. The derivation schedule converts each income statement line to cash in turn: sales less the rise in receivables, cost of goods sold adjusted for inventory and payables, and onward. A comparison page discusses what a lender sees in each column, noting the reconciliation US GAAP still requires alongside direct figures.
How a AC302 Unit 5 example is structured
Derivations come before the columns because the direct method's figures exist nowhere in the ledger. Each conversion follows one pattern: the accrual amount, the balance sheet changes that separate it from cash, and the result, with the sign logic stated once per line. Supplier payments take two steps, first purchases from cost of goods sold and the inventory change, then payments from purchases and the change in payables. Depreciation and the van gain are shown being excluded from the direct column entirely, since neither involves operating cash. The two columns then sit together so the matching total is visible at a glance. On the comparison page the argument tracks the standard's own logic: ASC 230 encourages the direct method, yet a direct presenter must still supply the indirect reconciliation as a separate schedule, which the sample includes.
Customers to cash
Sales of 4,800,000 less a 210,000 rise in receivables gives collections of 4,590,000, the first and largest line of the direct column.
Suppliers in two steps
Cost of goods sold plus the 140,000 inventory build gives purchases; purchases less the 95,000 rise in payables gives the 2,945,000 actually paid.
Interest and taxes paid
Interest expense of 64,000 less 6,000 of discount amortization; tax expense of 150,000 less the deferred tax increase, plus the reduction in taxes payable.
Same total, two routes
Both columns reach 447,000. The indirect lines explain the gap between profit and cash; the direct lines show where the retailer's cash came from and where it went.
A credit officer's two views
Collections and payments at full size appear only in the direct column, while the indirect one exposes strain in working capital. The page weighs both without crowning either.
Where marks go in AC302 Unit 5
Supplier payments are where direct-method answers go wrong most often. Using cost of goods sold unadjusted, or adjusting for inventory but not payables, misstates the largest outflow, and the error spreads into the comparison. Including depreciation among cash paid for operating costs is the next deduction, since it never involved cash. Interest paid reported at the full 64,000 of expense ignores the 6,000 of discount amortization inside it, and taxes paid taken straight from tax expense miss both the deferred tax change and the fall in taxes payable. A direct column that disagrees with the indirect one signals an error somewhere and is checked immediately. Comparison pages that declare one method correct lose judgment points, and omitting the required reconciliation schedule costs a little.
Get a AC302 Unit 5 example written to your instructions
An income statement, two balance sheets and whatever your Unit 5 problem says about disposals, amortization and taxes are all the direct column needs; add the rubric and any format your instructor posted. Both presentations, the derivations and the comparison arrive within 24-48h. The first custom sample carries no charge.
AC302 Unit 5 questions, answered
Why do so few companies use the direct method if it is encouraged?
Mostly cost. Ledgers record accruals, so the gross cash lines have to be derived, and a direct presenter must still provide the indirect reconciliation as a supplementary schedule, which means preparing both. Many lenders and analysts also read the reconciliation for working capital signals. The AC302 comparison page gives these reasons in two sentences and then returns to what the unit actually grades: the derivations.
How is cash paid for operating expenses derived?
Operating expenses, excluding depreciation and any other noncash charge, are adjusted for the change in prepaid costs and the change in accrued liabilities. A rise in prepaid costs means more cash left than was expensed, so it is added; a rise in accrued liabilities means less cash left, so it is subtracted. Here 1,020,000 plus 12,000 less 30,000 gives the 1,002,000 in the direct column.
What if the problem asks only for the direct method?
Many AC302 samples include the indirect reconciliation anyway, since US GAAP requires it whenever the direct method is used. If your prompt limits the answer to the direct column, the reconciliation appears as the required schedule rather than as a second column, and the comparison page shrinks to a paragraph. The derivation schedule stays either way, because graders check it line by line.