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Direct method uses actual cash flow information from the company's operations segment, instead of using accrual accounting values, While under Indirect method, the net cash flow from operating activities is determined by adjusting profit or loss for the effects of non-cash transaction
Under both the direct and indirect method, the presentation of the cash flow from investing and financing activities will be identical, Most of entitles use indirect method which is a complicated method compared to direct method.
Quality of earnings is usually mentioned when referring to earnings announcements and entity’s ability to convert earnings into cash
The main difference between the direct method and the indirect method involves the 'cash flows from Operating Activities', the first section of the statement of cash flows. (There is no difference in the cash flows reported in the 'Investing' and 'Financing Activities' sections.)Under the direct method, the cash flows from operating activities will include amounts for such as 'cash from customers' and 'cash paid to suppliers'.
In contrast, the indirect method will show net income followed by the adjustments needed to convert the total net income to the cash amount from operating activities.The direct method must also provide a reconciliation of net income to the cash provided by operating activities. (This is done automatically under the indirect method.)Nearly all companies/ entities prepare the statement of cash flows using the indirect method in linw with the general industry practice.
I agree with the answer given by Mohammed Siraj Assistant Manager.
