Respuesta :
The direct method only takes the cash transactions under consideration and produces the cash flow from operations. The income indirect method makes sure to automatically convert the net income in terms of cash flow.
Elaborate:
A major advantage of the indirect method of cash flows is that the method provides a reconciliation between net income and cash flows. The indirect method also helps financial-statement users better understand different linkages among financial statements and may be a simple way of preparing the statement of cash flows.
Which is best the direct or indirect method of cash flows statement?
Direct income statement is broadly accurate as it does not rely on adjustments and hence it takes less to time prepare cash flows statements. The indirect income method cannot be regarded as accurate as it accounts for adjustments and it generally requires more time in preparation.
How does one tell if a company uses direct or indirect method?
While both are ways of calculating your net income from operating activities, the most distinction is the starting point and types of calculations each uses. The indirect method begins together with your net income. Alternatively, the direct method begins with the cash amounts received and paid out by your business.
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