Final answer:
The direct method of the statement of cash flows starts with the actual cash received from customers, while the indirect method begins with the net income figure and adjusts for non-cash transactions and changes in working capital.
Step-by-step explanation:
The direct method and the indirect method of the statement of cash flows start with different numbers on the company's financial statements. The direct method begins with the actual cash received from customers while the indirect method starts with the net income and adjusts for non-cash transactions and changes in working capital. Specifically, the direct method reports all cash receipts and payments from operating activities, whereas the indirect method reconciles net income with cash flow from operations.
When preparing the statement of cash flows using the indirect method, one typically starts with the net income figure and makes adjustments for items such as depreciation, changes in accounts receivable and payable, and inventory to arrive at the net cash provided by (or used in) operating activities. The direct method, on the other hand, requires a more detailed accounting of actual cash transactions, including cash received from customers, cash paid to suppliers and employees, and other operating cash payments.