One of the key differences between direct and indirect method is the the type of transactions used. The indirect method uses net income as the base and converts the income into cash flow through the use of adjustments. The direct method only takes the cash transactions into account and produces the cash flow from operations.

Another difference is that indirect method makes sure to convert the net income in terms of cash flow automatically. Cash flow direct method, on the other hand, records the cash transactions separately and then produces the cash flow statement.

The cash flow indirect method needs preparation as the adjustments that are made to require time. The preparation time for the cash flow direct method isnt much since it only uses cash transactions.

Both the direct and indirect cash flow method are useful at different points and they can be used depending on the situation and the requirement. The indirect method is the most popular among companies. But it takes a lot of time to prepare (before recording) and its not very accurate as many adjustments are used.

The direct method, on the other hand, doesnt need any preparation time other than segregating the cash transactions from the non-cash transactions. And its more accurate than the indirect method.

Question: Why the indirect method is not accurate?

And why the indirect method is used more widely? (except the reason that it is far easier, and the direct method is complicated in a real company)