Answer to Question #264794 in Accounting for Malik

Question

Using examples explaining the difference between cash flow statements prepared using the direct method versus the indirect method;

Answer 1

Solution:

The indirect method begins with your net income, while the direct method begins with the cash amounts received and paid out by your business.

The cash flow direct method determines changes in cash receipts and payments, which are reported in the cash flow from the operations section. The indirect method takes the net income generated in a period and adds or subtracts changes in the asset and liability accounts to determine the implied cash flow.