Flip between the direct and indirect methods and watch both land on $20,000.
| Net income | $38,000 | |
| Add depreciation expense | +$24,000 | |
| Add loss on sale of plant assets | +$6,000 | |
| Subtract gain on retirement of notes | −$16,000 | |
| Subtract increase in accounts receivable | −$20,000 | |
| Subtract increase in merchandise inventory | −$14,000 | |
| Subtract increase in prepaid expenses | −$2,000 | |
| Subtract decrease in accounts payable | −$5,000 | |
| Subtract decrease in interest payable | −$1,000 | |
| Add increase in income taxes payable | +$10,000 | |
| Net cash from operating activities | $20,000 |
$20,000
$20,000
The lists each major class of actual cash receipt and cash payment — cash from customers, cash paid for merchandise, and so on — built straight from sales, cost of goods sold, and the same balance sheet changes the indirect method adjusts for.
Both methods only ever change how the operating section is presented. Investing and financing are identical either way, and the total net cash flow from operations always agrees.