![]() The direct method of cash flow statement takes more amount of time to prepare than the indirect method of cash flow statement.An indirect method has low accuracy since a lot of adjustments to the cash flows are required. The accuracy indirect method is high due to a lack of any adjustments that are required.No preparations are required for the direct method, while the indirect method involves a lot of preparation for the conversion of income.Non-cash expenses like depreciation and amortization are ignored in the direct method while they are taken into consideration in the indirect method.In the direct method, reconciliation is used to separate various cash flows from others, while in the indirect method, the conversion of net income is done in cash flow. Another difference between the direct method and the indirect method is reconciliation.Also, there is a net adjustment done between current assets and current liabilities to reach the final cash flow from operations. Then non-cash expenses like depreciation are added back, and non-cash income like profits garnered on scrap sales are deducted. On the other hand, in the indirect method, cash flow from operations calculation is done using net income as the base. In the direct method, the cash flow statement from operations is calculated using only cash transactions such as cash spent and cash received.Cash flow from operations in the direct method is presented in the following format:ĭifferences between Direct and Indirect Method o f Cash Flow Statement
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