Which methods are used for reporting cash flows?

The correct choice identifies the direct and indirect methods as the primary methods used for reporting cash flows in financial statements.

The direct method involves reporting cash receipts and cash payments from operating activities directly, showing the actual cash inflows and outflows. This method provides a clear and straightforward view of how cash moves through the business during a specific period, making it easier for stakeholders to see the company's liquidity position.

Conversely, the indirect method starts with net income and adjusts for changes in non-cash items and working capital to arrive at cash flows from operating activities. This method is often favored because it closely ties the cash flow statement to the income statement and balance sheet, offering insights into how net income relates to cash generated.

Understanding these methods is crucial in financial reporting as they highlight different aspects of a company’s cash management and financial health. While the direct method is considered more user-friendly, the indirect method is more commonly used in practice due to its alignment with accrual accounting practices.

The other options provided do not accurately represent the methods used for cash flow reporting. Cash and accrual methods pertain to different accounting approaches rather than cash flow reporting specifically, while consolidated and separate methods relate more to how financial statements are prepared for groups of companies versus individual