How does the direct method of cash flow presentation differ from the indirect method?

The direct method of cash flow presentation differs from the indirect method primarily in how cash flows from operating activities are reported. Under the direct method, cash inflows and outflows from operating activities are directly listed, reflecting specific cash transactions made during the period. This means that cash received from customers, cash paid to suppliers, and cash paid for operating expenses are all directly shown.

In contrast, the indirect method starts with net income and reconciles it to net cash provided by operating activities by adjusting for non-cash items and changes in working capital. This method does not provide the detailed breakdown of cash receipts and payments, making the cash flow statement less transparent in terms of actual cash movement related to operations.

Therefore, the distinction highlighted in the correct choice emphasizes the fundamental difference in how operating cash flows are presented, which is pivotal for understanding a company's liquidity and cash management practices.