What is the actual difference between the direct and the indirect cash flow method?
These are two different ways in which you can get changes in cash flow from operating activities during the period while preparing the cash flow statement for that period.
In the direct method, you straightforwardly look at the actual sources and uses of cash during the period, such as cash sales, cash purchases, receipts from debtors, payments to creditors etc.
In the indirect method, instead of directly looking at cash transactions, we start with net profit or loss for the period and then adjust it for non-cash transactions (such as depreciation) and non-operating transactions (such as those arising from investing and financing activities like gain on sale of plan, loss on sale of investment, loss on repayment of liabilities, etc.) to get cash flows from operating activities.
Under both the methods, cash flows from financing and investing activities are calculated in alike manner. The difference comes only in the way of calculating cash flows from operating activities as described above.
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