There are two types of accounting standards that can be applied to the preparation of a cash flow statement: the direct method and the indirect method.
The direct method involves starting with net income and then making adjustments for items that either increase or decrease cash flow. This approach is thought to provide more useful information to users of financial statements because it provides a clearer picture of how cash was generated during the period.
The indirect method, on the other hand, begins with accrual basis net income and then makes adjustments to arrive at cash from operating activities. This approach is required by U.S. GAAP and is more commonly used in practice.