Which method shows cash flows from operating activities based on actual cash transactions?

The direct method is the approach used to show cash flows from operating activities based on actual cash transactions. This method directly reports the specific cash inflows and outflows related to operating activities, such as cash received from customers and cash paid to suppliers and employees.

By focusing on cash receipts and payments, this method provides a clear and straightforward presentation of cash transactions, making it easier for users to understand the cash impact of operating activities. This allows stakeholders to see how much cash was generated from core business operations without the need for adjustments or estimates.

In contrast, other methods such as the indirect method start with net income and adjust for non-cash transactions and changes in working capital, lacking the direct insight into cash flows that the direct method provides. The traditional and adjusting method options are not standard terms used in accounting for cash flow statements, further emphasizing that the direct method is the correct approach for reporting cash flows based on actual cash transactions.