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Use of the indirect method of presenting cash flows from operating activities:

A illustrates the reasons for the difference between net income and operating cash flow.

An argument in favor of using the indirect method is that it links the income statement with the cash flow statement by focusing on the differences between net income and operating cash flow. Standard setting bodies permit either method but encourage use of the direct method. Companies that use the direct method must provide a disclosure that reconciles net income with cash flow from operations, similar information to what would be presented under the indirect method.


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