what is meant by direct method and indirect method
Answers
The cash flow direct method determines changes in cash receipts and payments, which are reported in the cash flow from the operations section. The indirect method takes the net income generated in a period and adds or subtracts changes in the asset and liability accounts to determine the implied cash flow.
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The direct method actually lists the major cash receipts and payments on the statement of cash flows. For example, cash receipts are often listed from customers, commissions, and tenants. Cash payments are usually broken out into several categories like payments for inventory, payroll, interest, rent, and taxes
The indirect method is one of two accounting treatments used to generate a 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 cash method of accounting.