Statement of Cash Flows-Direct Method vs Indirect Method

Statement of cash flows direct method vs indirect method will compare and contrast the direct method and indirect method forms of the cash flow statement. When comparing the direct and indirect method we are focusing in on the cash flows from operation section of the statement of cash flows as opposed to the financing or investing sections. In other words, the financing and investing sections will remain the same under either method. The direct method can be thought of as reworking the income statement line by line, adjusting each line from an accrual basis to a cash basis. The direct method makes intuitive seance and and is easy to explain to readers but is the less used method. One reason is that the indirect method is often required even if the direct method is used. The indirect method provides a kind of reconciliation between net income on an accrual method and net income on a cash method or cash provided by operating activities. The bottom line should be the same using either the direct or indirect method.
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