Indirect Method

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DEFINITION

A method for creating a statement of cash flows a company may use during any given reporting period. The indirect method uses accrual accounting information to present the cash flows from the operations section of the cash flow statement.

Under both the direct and indirect methods the remaining two sections of the cash flow statement, cash provided from investing and financing activities will be identical.

INVESTOPEDIA EXPLAINS

The indirect method uses accounting information, instead of actual cash inflow and outflow data, the internal information is readily available and may be easier to implement. Since a company is most likely required to report its financial information to an outside party, regardless if the company is publicly held or not, the accrual accounting information will be readily available.


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