this is what i found from Schweser: (I know its lengthy)
The only difference between the indirect and direct methods of presentation is in the cash flow from operations (CFO) section. CFO under the direct method can be computed using a combination of the income statement and a statement of cash flows prepared under the indirect method.
There are two major sections in CFO under the direct method: cash inflows (receipts) and cash outflows (payments). We will illustrate the conversion process using some frequently used accounts. Please note that the list below is for illustrative purposes only and is far from all-inclusive of what may be encountered in practice. The general principle here is to adjust each income statement item for its corresponding balance sheet accounts and to eliminate noncash and nonoperating transactions.
Cash collections from customers:
Begin with net sales from the income statement.
Subtract (add) any increase (decrease) in the accounts receivable balance as reported in the indirect method. If the company has sold more on credit than has been collected from customers, accounts receivable will increase and cash collections will be less than net sales.
Add (subtract) an increase (decrease) in unearned revenue. Unearned revenue includes cash advances from customers. Cash received from customers when the goods or services have yet to be delivered is not included in net sales, so the advances must be added to net sales in order to calculate cash collections.
Cash payments to suppliers:
Begin with cost of goods sold (COGS) as reported in the income statement.
If depreciation and/or amortization have been included in COGS (they increase COGS), these items must be added back to COGS when computing the cash paid to suppliers.
Reduce (increase) COGS by any increase (decrease) in the accounts payable balance as reported in the indirect method. If payables have increased, then more was spent on credit purchases during the period than was paid on existing payables, so cash payments are reduced by the amount of the increase in payables.
Add (subtract) any increase (decrease) in the inventory balance as disclosed in the indirect method. Increases in inventory are not included in COGS for the period but still represent the purchase of inputs, so they increase cash paid to suppliers.
Subtract an inventory write-off that occurred during the period. An inventory write-off, as a result of applying the lower of cost or market rule, will reduce ending inventory and increase COGS for the period. However, no cash flow is associated with the write-off.
Other items in a direct method cash flow statement follow the same principles. Cash taxes paid, for example, can be derived by starting with income tax expense on the income statement. Adjustment must be made for changes in related balance sheet accounts (deferred tax assets and liabilities, and income taxes payable).
Cash operating expense is equal to selling, general, and administrative expense (SG&A) from the income statement, increased (decreased) for any increase (decrease) in prepaid expenses. Any increase in prepaid expenses is a cash outflow that is not included in SG&A for the current period.