Final answer:
The indirect method adjusts net income for non-cash transactions and changes in working capital to compute net cash provided by operating activities. It is different from the direct method, which reports cash transactions directly. The cash and accrual methods are broader accounting recognition techniques.
Step-by-step explanation:
The method used to compute net cash provided by operating activities that adjusts net income for items that affected reported net income but did not affect cash is known as the indirect method. This method begins with the net income and then adjusts it for non-cash transactions, changes in working capital, and other operating items. The adjustments include adding back non-cash expenses such as depreciation and amortization, and accounting for changes in accounts receivable, accounts payable, and inventory that affect net income but not cash flows.
Contrastingly, the direct method involves reporting all cash receipts and payments from operating activities directly, without starting from the net income. The three major categories of operating cash flow under the direct method are cash received from customers, cash paid to suppliers and employees, and other cash payments.
The cash method and accrual method refer to overall accounting techniques for recognizing revenues and expenses. Under the cash method, revenues and expenses are only recorded when cash is exchanged. Under the accrual method, revenues and expenses are recorded when they are earned or incurred, regardless of when the cash is exchanged.