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This post addresses the direct and indirect methods.

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When considering the direct and indirect method, I believe that the direct method would be the preferred method. The reason is because of the consistency in the data when using this method. Additionally, the FASB also prefers the direct method over the indirect method. What do you believe is the motivation for the two different methods? Some sources point out that the indirect method is cheaper, which I believe is the reason companies prefer it since "Time is Money", but since both methods achieve the same result, what is the point in having two methods? Do you believe this came about when companies were trying to "adjust" the numbers? Or for some other reason? Briefly explain please.

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Solution Summary

The solution discusses the difference between the direct and indirect methods of the Statement of Cash Flows, why the FASB prefers one method, and discusses the motivation as to why there are two different methods.

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Even though the FASB prefers the direct method, most companies don't use the direct method. There is a need for a second method because the direct method is more time consuming, and in addition, the direct method gives more detailed information, which means that the information is available to the ...

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