Accounting Dictionary

Direct Method

This is a method for calculating the Statement of Cash Flows. Using this method entails counting the exact amount of cash flows from operating activities rather than calculating the amounts by looking at the changes in accounts receivable, accounts payable, and other current assets.

If a statement is done this way, you will get the exact same answer as doing it by the indirect method and the Cash flows from Operating Activities will be the only section that will look different. Very few companies actually use this method because it is very time consuming and not compatible with most companies’ financial computer programs.

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