Indirect and Direct
The Financial Accounting Standards Board's Summary of Statement No. 95 requires a company to report a statement of cash flows as part of its full set of financial statements. Net cash flow from operating activities shows the amount of cash a company generates through its normal course of business. Accounting rules allow companies to report their cash flow statement using the direct or indirect method, and both methods report net cash flow from operating activities.
Direct/Indirect Cash Flow
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. Direct Method, the cash flows from operating activities will include the amounts (cash from customers, and cash paid to suppliers). Indirect shows net income followed by adjustment’s needed to change the total net income to the cash amount.
Both Methods
The Financial Accounting Standards Board's Summary of Statement No. 95 requires a company to report a statement of cash flows as part of its full set of financial statements. In the United States in 1971, the Financial Accounting Standards Board (FASB) defined rules that made it mandatory under Generally Accepted Accounting Principles (US GAAP) to report sources and uses of funds, but the definition of "funds" was not clear. Net working capital might be cash or might be the difference between current assets and current liabilities. US GAAP permits using cash alone or cash and cash equivalents. US GAAP (FAS 95) requires that when the direct method is used to present the operating activities of the cash flow statement, a supplemental schedule must also present a cash flow statement using the indirect method.
Preference Both Statements of cash flow preparation methods are allowable under basic accounting standards, however the FASB prefers the direct method for the statement of cash flows. It seems that the stockholders of the companies find this statement
Direct/Indirect Cash Flow
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. Direct Method, the cash flows from operating activities will include the amounts (cash from customers, and cash paid to suppliers). Indirect shows net income followed by adjustment’s needed to change the total net income to the cash amount.
Both Methods
The Financial Accounting Standards Board's Summary of Statement No. 95 requires a company to report a statement of cash flows as part of its full set of financial statements. In the United States in 1971, the Financial Accounting Standards Board (FASB) defined rules that made it mandatory under Generally Accepted Accounting Principles (US GAAP) to report sources and uses of funds, but the definition of "funds" was not clear. Net working capital might be cash or might be the difference between current assets and current liabilities. US GAAP permits using cash alone or cash and cash equivalents. US GAAP (FAS 95) requires that when the direct method is used to present the operating activities of the cash flow statement, a supplemental schedule must also present a cash flow statement using the indirect method.
Preference Both Statements of cash flow preparation methods are allowable under basic accounting standards, however the FASB prefers the direct method for the statement of cash flows. It seems that the stockholders of the companies find this statement