Indirect method
With the indirect method, you start with net income on an accrual accounting basis and work backward until it's a cash basis figure. Since accrual accounting means that revenue is recognized when earned (not when cash is received), the figure can be very different than that of cash accounting. This often looks like simply subtracting transactions that were earned but not paid within a certain time with a specific line-item notation on the cash flow statement.
Direct method
The direct method starts with the company recording all transactions on a cash basis. So, when you're paid for a product, for example, you record the payment -- not when it's earned (i.e., when you get the order, but it's not paid). There are many ways and reasons that payments are deferred, which can interfere with accurate cash flow statements when using the accrual method.