The direct method of preparing the statement of cash flows is recommended by the Financial Accounting Standards Board (FASB). However, the direct method is rarely used.

The 2007 edition of Accounting Trends & Techniques published by the American Institute of Certified Public Accountants surveyed 600 annual reports to stockholders for the year 2006 and found that only 6 used the direct method, while 594 used the indirect method.

You can read the official FASB pronouncement on the Statement of Cash Flows at www.FASB.org/st.

Learn about Statement of Cash Flows prepared under the indirect method.

About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years.

He is the creator of the AccountingCoach Pro which has been praised for its ability to simplify accounting in a way that anybody can understand.

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