Which method directly traces cash inflows and outflows?

The direct method is the approach that specifically traces cash inflows and outflows related to operating activities. This method provides a detailed account of how cash is received from customers and how it is paid to suppliers and employees. By presenting cash transactions directly, it enhances the clarity of the cash flow from operating activities, allowing stakeholders to see the actual cash generated or used during a reporting period.

In contrast, the indirect method starts with net income and adjusts for non-cash transactions and changes in working capital. While both methods ultimately lead to the same cash flow from operating activities figure, the direct method offers a more straightforward view of cash movements. The other choices do not accurately reflect methods that focus specifically on cash flows in the same direct manner as the direct method.