Financial statements - Direct method
Not what you're looking for?
While the direct method is preferred most companies use the indirect method due to the time it would take to complete the direct method. For my place of employment I can only begin to think how we would arrive at the information we would need for the direct method without a lot of work. On top of that if the direct method is used companies are still required to include the reconciliation between net income and operating cash flow. Therefore it would be very time consuming and costly from the perspective of man hours to report using the direct method.
For what reasons do you believe the direct method is more useful to financial statement users? Any reasons it would be less useful?
Purchase this Solution
Solution Summary
Your response is 230 words and discusses what the direct method tells you that is useful and what the indirect method tells you that is also needed. Neither is "more" useful - they are both helpful, but in different ways.
Solution Preview
Neither is "more" useful - the two methods are both helpful, but in different ways. The ultimate is both - a direct method presentation and a footnote showing the reconciliation (which is basically the indirect method). Of course, as you mention, this is an amazing amount of work and so firms usually report the indirect method (required either on the face of the statement or in the footnote) and leave off ...
Education
- BSc, University of Virginia
- MSc, University of Virginia
- PhD, Georgia State University
Recent Feedback
- "hey just wanted to know if you used 0% for the risk free rate and if you didn't if you could adjust it please and thank you "
- "Thank, this is more clear to me now."
- "Awesome job! "
- "ty"
- "Great Analysis, thank you so much"
Purchase this Solution
Free BrainMass Quizzes
Balance Sheet
The Fundamental Classified Balance Sheet. What to know to make it easy.
Operations Management
This quiz tests a student's knowledge about Operations Management
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.