When using the indirect method of preparing the statement of cash flows, the payment of interest is considered to be:
A)an outflow of cash that results from a financing activity.
B)an outflow of cash that results from an investing activity.
C)an outflow of cash that results from an operating activity.
D)an activity that is not reported on the statement of cash flows.

Question

Quizplus · Accepted Answer

The payment of interest is considered to be an outflow of cash that results from an operating activity when using the indirect method of preparing the statement of cash flows. This is because the interest payment is related to the cost of borrowing funds to support the company's ongoing operations. Therefore, it is included in the operating activities section along with other cash flows related to the company's core business activities.

When Using the Indirect Method of Preparing the Statement of Cash