A machine with a cost of $174,000, current year depreciation expense of $28,000, and accumulated depreciation of $107,000 is sold for $57,600 cash

Answers: Zero under the direct method ; Depreciation expense of $28,000 under the indirect method.

Under the direct method of the statement of cash flows, all transactions resulting to cash inflows and outflows are reported. None of the amounts in the transaction resulted in cash inflows or outflows as a result of the primary operations of the company, which is why none would appear in the statement of cash flows reported under the direct method. On the other hand, under the indirect method of preparation of the statement of cash flows, net income is used as a starting point and are adjusted by non-cash items such as the depreciation expense, and movement of current and non-current liabilities, to determine the amount of cash flows resulting to operating activities.