The indirect method of reporting cash flows is useful for simplifying your operational activities to investors. It can also be used to present investing and financial activities. The main purpose is to present as easy-to-digest version of the company's financial state that includes net income or loss and non-cash expenses and activities that led to the current net income.
The use of indirect method should not change the amount of total cash generated from operations when compared with the direct method. The operating cash flow can be found by subtracting expenses from the previous net income and adding to the liability column.
While the direct method lists every receipt and payment from each source, the indirect method just provides results. Individual payment information can be retrieved in the accounting system. Cash and assets need to be balanced, as does liability with net income. The indirect method is preferred by many organizations because it saves time and resources.
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