The direct method and the indirect method of preparing the cash flow statement differ only in the investing section.

Question

Quizplus · Accepted Answer

The direct and indirect methods of preparing the cash flow statement differ not only in the investing section, but also in the operating and financing sections. The main difference between the two methods is how cash flows from operating activities are calculated. The direct method lists all cash receipts and payments from operating activities, while the indirect method starts with net income and adjusts for non-cash items and changes in working capital to arrive at cash flows from operating activities. The investing and financing sections are presented the same way in both methods.

The Direct Method and the Indirect Method of Preparing the Cash