How to understand Direct Method 、 Indirect Method？

The Direct Method and Indirect Method are two different approaches to presenting the cash flow statement.

The Direct Method involves presenting actual cash inflows and outflows for the period, while the Indirect Method involves adjusting net income for non-cash items and changes in working capital to arrive at the cash flow from operating activities.

The Direct Method is considered more straightforward and easier to understand, as it provides a clear picture of the cash flows of the business. However, it can be more time-consuming and costly to prepare, as it requires detailed information on all cash transactions during the period.

The Indirect Method, on the other hand, is more commonly used and provides a reconciliation of net income to cash flows from operating activities. It is often preferred by companies as it requires less detailed information and can be easier and quicker to prepare.

In summary, the Direct Method focuses on actual cash transactions, while the Indirect Method focuses on adjustments to net income to arrive at cash flows. Both methods have their advantages and disadvantages, and companies may choose the method that best suits their needs and preferences.