By reporting cash receipts and cash payments, the direct method provides information that is useful to investors and creditors in predicting future cash flows that is NOT available under the indirect method.

Question

Quizplus · Accepted Answer

The direct method of reporting cash flows from operating activities presents specific cash receipts and cash payments, allowing users to see actual cash flow sources and uses. This level of detail can aid in predicting future cash flows more directly than the indirect method, which adjusts net income for non-cash transactions and changes in working capital to arrive at cash provided by operating activities.

By Reporting Cash Receipts and Cash Payments, the Direct Method