If a Company Borrows Money from a Bank,the Interest Paid

question 123

Multiple Choice

If a company borrows money from a bank,the interest paid on this loan should be reported on the statement of cash flows as a(n) :

• A)Operating activity.
• B)Investing activity.
• C)Financing activity.
• D)Noncash investing and financing activity.
• E)None of these.This is not reported in the statement of cash flows.

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Definitions:

Cash Cycle

The duration between the initial investment in inventory and receiving cash from sales of the inventory.

Accounts Payable Period

The average period it takes for a company to pay off its suppliers, calculated by dividing accounts payable by the average daily purchases.

Operating Cycle

The time period that starts with the purchase of raw materials and ends with the collection of receivables generated from sales, measuring how long it takes for a business to turn expenditures into cash from sales.

Inventory Turnover

A ratio indicating how many times a company has sold and replaced inventory over a specific period, showing efficiency in managing stock.