What is direct method in SAP FI-GL - General Ledger Accounting?

SAP Term: direct method

• Component: FI-GL

• Component Name: General Ledger Accounting

• Description: A method of preparing the cash flow statement whereby you subtract the cash disbursements incurred for operating activities from the cash receipts earned from the same.

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• Key Concepts: 
  The direct method is a method of accounting for foreign currency transactions in SAP FI-GL General Ledger Accounting. It is used to record the exchange rate differences between the functional currency and the foreign currency. The direct method is based on the principle that all foreign currency transactions are initially recorded at the exchange rate at the time of the transaction. 
  
  How to use it: 
  In SAP FI-GL General Ledger Accounting, the direct method is used to record foreign currency transactions. When a foreign currency transaction is entered into the system, it is recorded at the exchange rate at the time of the transaction. The exchange rate difference between the functional currency and the foreign currency is then recorded as a separate line item in the general ledger. 
  
  Tips & Tricks: 
  When using the direct method, it is important to ensure that all foreign currency transactions are recorded at the correct exchange rate. This can be done by regularly checking and updating exchange rates in SAP FI-GL General Ledger Accounting. 
  
  Related Information: 
  The direct method is one of two methods used to account for foreign currency transactions in SAP FI-GL General Ledger Accounting. The other method is called the indirect method. The indirect method records all foreign currency transactions at the functional currency exchange rate, and then records any exchange rate differences as a separate line item in the general ledger.