Indirect Method

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In chapter 12, we learn that FASB recommends the direct method of reporting cash flow but only 1% of companies actually use it. 1) What is one reason companies use the indirect method instead? 2) How might the indirect method better connect to the Balance Sheet and Income Statement compared to the direct method of reporting?
The direct and indirect methods of reporting cash flow are similar in their final goal (which is reporting cash flow from operating activities) is the same, however they function differently. Ninety nine percent of the large US companies use the indirect method of reporting. However, to understand why the indirect method is used is would require the ability to distinguish between the two methods.
1) Cash flow from operating activities is always the same regardless of whether it is computed using the direct or indirect method.
2) …show more content…
The FASB recommends the direct method. The nature of indirect the method is much simpler when it comes to connecting to the Balance Sheet and the Income Statement than the direct method. Therefore, the information is easier to mentally process. Consequently, the indirect method takes less time, since time is money it cost less time and

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