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

Question

Quizplus · Accepted Answer

The direct method of preparing the cash flow statement provides a more transparent and understandable presentation of cash inflows and outflows compared to the indirect method. The direct method directly reports the cash receipts and payments during the accounting period, which provides a more detailed analysis of the company's cash position. However, the direct method could be more time-consuming and costly to prepare than the indirect method, which adjusts the net income for non-cash transactions and changes in balance sheet items to derive the cash flow information.

The Direct Method of Preparing the Cash Flow Statement Provides