In the context of cash flow statements, which method is more commonly used?

The indirect method is more commonly used in preparing cash flow statements because it starts with net income and adjusts for changes in balance sheet accounts to convert accrual accounting figures into cash flows. This method is favored because it provides a reconciliation of net income to net cash provided by operating activities, which many users find helpful for understanding how operational results impact cash flows.

The indirect method is less labor-intensive since it relies on existing income statement and balance sheet figures, making it more straightforward to implement for most companies. Additionally, many companies may be more familiar with accrual accounting practices and prefer to showcase the adjustments necessary to arrive at cash flows.

In contrast, while the direct method presents cash flows from operating activities by listing all cash receipts and cash payments, it is less commonly used due to the additional effort required to gather and report this information. The comparative method and accrual method are not standard approaches for cash flow statements, which solidifies the indirect method's position as the more prevalent choice among businesses.