![]() ![]() Simplicity: The indirect method is generally considered simpler and less time-consuming compared to the direct method.Availability of information: The indirect method relies on readily available financial statements, such as the income statement and balance sheet.Here are reasons why the indirect method is used for preparing the cash flow statement: Why use an indirect method for the cash flow statement Direct cash flow statement: The direct method directly reports the actual cash inflows and outflows from operating activities.Indirect cash flow statement: The indirect method starts with net income from the income statement and adjusts for non-cash items (depreciation, working capital, non-operating gains/losses) to arrive at the net cash provided by or used in operating activities.The difference between an indirect and direct cash flow statement is in how they prepare the operating activities section of the statement of cash flows: This method is also preferred because the information is readily available by using a comparative incomes statement and balance sheet.The indirect method is the most commonly used method for the cash flow statement.The indirect method uses increases and decreases in balance sheet line items to modify the operating section of the cash flow statement from the accrual method to the cash method of accounting.The indirect method is used when the company is using the accrual basis of accounting instead of cash. ![]() The following are important aspects of this method: The indirect method is one of two accounting treatments used to create a cash flow statement. What is the indirect method of cash flows?
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