The direct method of preparing the statement of cash flows provides a clearer way of analyzing cash flow information than the indirect method.

Question

Quizplus · Accepted Answer

The direct method presents actual cash inflows and outflows during the period, which gives a more transparent view of the sources and uses of cash compared to the indirect method, which adjusts the net income for non-cash transactions and changes in balance sheet accounts. However, the direct method is generally more difficult and time-consuming to prepare.

The Direct Method of Preparing the Statement of Cash Flows