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How is a Cash Flow Statement Produced? Additionally, the cash flow statement may include disclosure of non-cash activities when prepared under generally accepted accounting principles (GAAP)-items like fixed asset depreciation, goodwill amortization and the like. There are two methods of cash flow statement preparation: direct and indirect. The best choice for your business depends on how much detail you need to include in your statement, as well as how much time you are willing to dedicate. While both methods are GAAP-approved, the International Accounting Standards Board (IASB) prefers the direct reporting method. However, most small businesses use the indirect method. Direct vs. Indirect Methods of Producing a Cash Flow Statement The main difference between the direct method and the indirect method of presenting the statement of cash flows (SCF) involves the cash flows from operating activities. There are no differences in the cash flows from investing activities and the cash flows from financing activities under either method-the real difference lies in the operating activities. Direct cash flow method: This method relies on cash-basis accounting. Finance records revenues and expenses as cash is received or disbursed by the business. The direct method requires more organization and legwork, since you subtract actual cash flows from inflows. […]