Final answer:
The indirect method is preferred globally by businesses as it aligns with the accrual basis of accounting, is less costly and easier to prepare, and provides insights into differences between operating income and actual cash flow.
Step-by-step explanation:
Most businesses around the globe choose to use the indirect method for cash flow statements because it offers certain advantages over the direct method. The indirect method begins with net income and converts it to net cash flow from operating activities by adjusting for items that affected reported net income but didn't affect cash. While both methods arrive at the same total, the indirect method provides helpful insights into the differences between a company's operating income and its actual cash flow. Additionally, the indirect method is often favored because it is easier to prepare using information that is already available from the income statement and balance sheet, and it's less costly since it does not require tracking cash receipts and payments. This method also avoids the complexity of compiling detailed cash transaction data required for the direct method.
Moreover, the indirect method aligns more closely with the accrual basis of accounting, which most companies use. It presents an opportunity to explain differences between income reported in the income statement, which is based on the matching principle, and the cash actually received or used in business operations. This reasoning also applies to the global business infrastructure where governments can impact the operational efficiency through capital, making regions with seemingly higher costs preferable due to the government capital in place, like infrastructure and stability.