Question

While preparing Cash Flow Statement, the accountant of 'Rachana Ltd.', a financing company, included 'Interest received on loan' in financing activities. Was the correct in doing so? Give reason.

Answer 1

The accountant was wrong in his approach of showing 'Interest received on Loan' under 'Financing Activity'. Interest received on loan by a financing company is cash inflow from operating activities. So it is to be categorised under 'Cash Flow from Operating Activities'.