Direct Method


DEFINITION of 'Direct Method'

A method of creating a statement of cash flows during a given reporting period. The method uses actual cash flow information from the company's operations segment, instead of using accrual accounting values.

Under both the direct and indirect method, the presentation of the cash flow from investing and financing activities will be identical.

BREAKING DOWN 'Direct Method'

Under the direct methods, the only section of the cash flow statement that will differ in presentation is the cash flow from operations section. Since the direct methods uses actual cash flow information, such as the actual cash outflow of all overhead expenses, there usually must be a different method of calculation for the company's internal controls.

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