How Does the Direct Method Differ from the Indirect Method

question 28

Essay

How does the direct method differ from the indirect method? How does the choice of methods impact the amount of net cash flow from operating activities?

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Definitions:

Liability

An obligation or debt that a company owes to others, which must be settled through the transfer of assets or services.

Expense

An economic outflow or the consumption of resources resulting from the operations of a business.

Creditor

An individual, financial institution, or company to whom money is owed by a debtor or borrower.

Asset

An asset represents a resource that is owned or controlled by the company with the expectation that it will provide future economic benefits.