What is the primary purpose of the indirect method in cash flow accounting?

The primary purpose of the indirect method in cash flow accounting is to adjust net income to a cash basis. This method starts with net income, as reported on the income statement, and makes a series of adjustments to account for non-cash transactions and changes in working capital.

This approach is particularly useful because the standard income statement is prepared on an accrual basis, which means it includes revenues and expenses that may not have been received or paid in cash during the period. The adjustments made in the indirect method help reconcile net income with actual cash flows from operating activities, thereby providing a clearer picture of the company's cash situation.

This method is favored by many businesses because it links the cash flow statement to the income statement, making it easier to understand how changes in the company's operational performance directly affect its cash flow. In contrast, the other options listed, while relevant to financial accounting, do not accurately capture the essence of the indirect method's primary function in cash flow accounting.