Indirect Method
Candlefocus EditorThe indirect method is a preferred approach to accounting since it is easier to use when compared to the direct method of accounting. Unlike the direct method which requires businesses to list every single cash disbursement that is made over a given period of time, the indirect method requires a lot less time and complexity in order to present the cash flow statement. Additionally, larger businesses typically use accrual based accounting which makes the indirect method an easy choice for them to generate cash flow statements.
Under the circumstances of providing a cash flow statement, the indirect method is an ideal option to use due to its ease of use and presentation of more insightful details. For example, the indirect method enables businesses to determine how much cash they have generated through operations and list out the non-operational activities that have taken place. This includes items such as cash generated from investments, bond issuances, or through repurchasing of outstanding stock.
Overall, the indirect method of accounting is used by most businesses to report cash flow uses and presents a great deal of useful information that businesses can utilize in order to make more informed decisions. By utilizing the indirect method, companies get to have a better understanding of where the company cash is being utilized and the growth that the company is experiencing.