The Direct Method

The Direct Method is an approach used in accounting to prepare cash flow statements by directly listing all cash inflows and outflows during a specific period. It involves recording actual cash receipts from customers and cash payments for expenses such as wages, supplies, and taxes. This method provides a clear view of cash movement, making it easier to understand how much cash the business generated and used. While more detailed, it requires more record-keeping compared to other methods, like the indirect method, which adjusts net income for non-cash activities.