Direct Method

1. GAAP encourages enterprises to report cash flows from operating activities using the direct method by showing major classes of operating cash receipts and disbursements. A reconciliation of net income and net cash flows from operating activities is required in a separate schedule. See also indirect method and operating activities. Method of allocating service department costs that ignores any services rendered by one service department to another, allocating each service department's costs directly to the production departments. (Also called direct allocation method.)
2. A method of preparing the statement of cash flows where net cash flows from operating activities are reported as major classes of operating cash receipts and cash disbursements (as opposed to indirect method.)