The advantages and disadvantages of the direct and indirect methods

The two methods which can be used to prepare the cash flow statement are the direct and indirect methods.

Advantages of the direct method:

• Information is shown which is not shown elsewhere in the financial statments.
• It shows the ture cash flows involved in the trading operations of the entity.

The main drawback is the cost of preparing the information.

Advantages of the indirect method:

• The user can easily relate trading profits to cash flow.
• The cost of preparing the information is low.

The main drawback is the lack of information on the significant elements of trading cash flows.

Related posts:

1. The direct and indirect method of cash flow
2. Advantages of the cash flow statement
3. Cash flow statement template
4. Methods of calcuating depreciation
5. Limitations of the cash flow statement