What are the differences between the direct and indirect methods in cash flow statements?
There are no differences for the investing and financing sections. The differences exist only in the operating section, which looks like this under the direct and indirect method: Direct method- Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees Cash generated from operations Interest paid Income taxes paid Net cash from operating activities xxx Indirect method- Cash flows from operating activities Profit before taxation Adjustments for: Depreciation Foreign exchange loss Investment income Interest expense Increase in trade and other receivables Decrease in inventories Decrease in trade payables Cash generated from operations Interest paid Income taxes paid Net cash from operating activities xxx With the Direct Method, the cash flow from operations is calculated directly (from scratch). With the Indirect Method, however, the cash flow from operations is calculated by taking the net income of the company and then making adjustments. Th
