The section that will differ between the direct method and the indirect method is the operating activities. The investing and financing activities sections will stay the same whether it’s the direct or indirect method. A company can choose the direct method or the indirect method.
There are two ways to prepare the cash flow statements. The Direct Method: ExplainedĪ cash flow statement contains three sections the operating activities, investing activities and financing activities. We will take a deeper look into the direct method and illustrate it with an example. In the accounting world, there are two ways to draft the cash flow statement the direct method and the indirect method. It shows inflows and outflows of money for a specified financial period.Īlong with the balance sheet and income statement, the cash flow statement is considered an important section of a set of financial statements. The cash flow statement gives a great insight into a company’s cash management.
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