Discussion
Many providers of financial statements contend that it is less costly to adjust net income to net cash flow from operating activities (indirect) than to report gross operating cash receipts and payments (direct). Brigham & Ehrhardt (2022) argues that one of the principal advantages of the indirect method is that it focuses on the differences between net income and net cash flow from operating activities. It provides a valuable link between the statement of cash flows and the income statement and balance sheet.
Brigham & Ehrhardt (2022) argue that supporters of the indirect method of the cash flow statement also argue that the direct method, which effectively reports income statement information on a cash rather than an accrual basis, may erroneously suggest that net cash flow from operating activities is as good as, or better than, net income as a measure of performance. Based on what you have read on the Cash flow statement, what are the principal advantages of the indirect method shown in cash receipts and payments?
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APA Format, 636 words