Question

What to consider when choosing between direct and indirect cashflow methods

Answer 1

Considerations when choosing between direct and indirect cash flow methods include the type of business, accurate reporting, and investor preference.

Step-by-step explanation:

When choosing between direct and indirect cashflow methods, there are several factors to consider:

1. Type of business: Direct cash flow method is generally preferred for businesses that primarily deal with cash transactions, such as retail stores. Indirect cash flow method is suitable for businesses with complex transactions, such as manufacturers or service providers.
2. Accurate reporting: Direct cash flow method provides a more accurate picture of the cash inflows and outflows, whereas indirect method involves adjustments and reconciliation to arrive at the net cash flow.
3. Investor preference: Some investors may prefer the direct method as it provides a more transparent view of cash flow, while others may be comfortable with the indirect method.

Ultimately, the choice between direct and indirect cash flow methods depends on the nature of the business, reporting requirements, and preferences of stakeholders.