Free Guide to
Bookkeeping Concepts

Accounting Bookkeeping Concepts PDF Cover

Receive our free 18-page Guide to Bookkeeping Concepts (PDF) when you subscribe to our free newsletter.

You are already subscribed. This offer is not available to existing subscribers.
Step 2: Please check your email and click the confirmation link.

265,986
Subscribers

What is the difference between the direct method and the indirect method for the statement of cash flows?

The main difference between the direct method and the indirect method involves the cash flows from operating activities, the first section of the statement of cash flows. (There is no difference in the cash flows reported in the investing and financing activities sections.)

Under the direct method, the cash flows from operating activities will include the amounts for lines such as cash from customers and cash paid to suppliers. In contrast, the indirect method will show net income followed by the adjustments needed to convert the total net income to the cash amount from operating activities.

The direct method must also provide a reconciliation of net income to the cash provided by operating activities. (This is done automatically under the indirect method.)

Nearly all corporations prepare the statement of cash flows using the indirect method.



View Our Course Outline