BreakevenEssay title: BreakevenFinancial Reporting:Direct- versus Indirect-Method Reporting for Cash FlowsShould operating cash flows be reported using the direct or the indirect method?Position: Operating cash flows should be reported using the direct method.Rationale:Two general methods are available for reporting cash flows generated or consumed by operations, the direct method and the indirect method:The direct method reports cash inflows of cash, e.g., from sales, and cash outflows for payment of expenses, e.g., purchases of inventory; andThe indirect method which begins with the net income number, a mixture of cash (e.g., cash proceeds from sales ) and non-cash components (e.g., depreciation) and (1) removes non-cash or accrual items, then (2) adjusts for the cash effects of transactions not yet reflected in the income statement (e.g., cash payments for inventory not yet sold).
Keywords: Direct- versus Indirect- method, Direct data, Direct/Indirect- versus Indirect Methods, Direct sources of cash flow, Liquidation, Liquidation method, Liquidation effect.