Question

The direct method and the indirect method are two alternative presentations for cash flows from investing activities. What is the difference between the direct method and the indirect method for the statement of cash flows?

Answer 1

The main difference between presenting the cash flow statement using indirect method and direct method is of how the cash flows from operating activities is calculated.

Step-by-step explanation:

The main difference between indirect and direct method is of how the cash flows from the operating activities are taken out , while the method to take out cash flow from investing and financing activities is same .

In the indirect method, to calculate the cash flow from operating activities we start from the net income and then we make necessary adjustments in it , like adding depreciation expenses , adding and subtracting changes in current assets and current liabilities.

While calculating the cash flow from operating activities under direct method, the net income would not be the starting point , instead here the amount of cash that company has paid and received would be listed here.

Answer 2

Answer: The given statement is false.

Explanation: The direct method and the indirect method are two methods of presenting operating activities of a business in a cash flow statement.

The main difference between direct and indirect method of cash flow is that in indirect method the accountant adjust various factors like non cash transactions from the net income of the year.

Whereas in direct method, transactions involving usage and incoming of cash are used to calculate net inflow or outflow from operating activities.