International Journal of Finance and Accounting
p-ISSN: 2168-4812 e-ISSN: 2168-4820
2014; 3(6): 335-340
doi:10.5923/j.ijfa.20140306.01
Bassam M. Abu-Abbas
Princess Sumaya University for Technology, Amman, Jordan
Correspondence to: Bassam M. Abu-Abbas, Princess Sumaya University for Technology, Amman, Jordan.
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Both IAS 7 and SFAS 95 allow the option of reporting either the direct or indirect method when preparing statement of cash flows. Both the IASB and the FASB consider the direct method as the preferred method of presenting cash flows from operations. Different studies in the literature find that the majority of the companies are using only the indirect method. The purpose of this study is to support one argument of the following: when preparing statement of cash flows, the preparers should use the direct method, the indirect one, or both. This study summarizes the advantages of direct and indirect methods, studies the possibility of using the information available to convert a statement of cash flows using indirect method to direct method, studies the possibilities of using the information available in the financial statement to prepare statement of cash flows using direct method, studies the effect of cost using either method compared with the other one. The results show that we can estimate either the direct method or the indirect method of statement of cash flows but the estimated statement does not give 100% accurate results. If the users of financial statements accept less than 100% accuracy in the statements, then companies can prepare either an indirect or a direct method of statement of cash flows. Otherwise, the company should ask prepares to prepare both methods or use a cost-benefit analysis to determine which method that should be used. My argument ends with maximizing the benefits is achieved by providing statement of cash flows using both direct and indirect methods.
Keywords: Cash flows, Direct, Indirect
Cite this paper: Bassam M. Abu-Abbas, Direct, Indirect, or Both Methods of Reporting Operating Statement of Cash Flows, International Journal of Finance and Accounting , Vol. 3 No. 6, 2014, pp. 335-340. doi: 10.5923/j.ijfa.20140306.01.
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