US CMA Part 1 · Chapter 1 · Question 2 of 23
Under US GAAP, how is cash paid for interest on a company's bank loan classified in the statement of cash flows?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: C) Operating activities
Explanation
US GAAP requires interest paid to be classified as an operating cash outflow because interest expense is included in net income. IAS 7 has allowed a policy choice between operating and financing (removed for most non-financial entities by the IFRS 18 amendments to IAS 7), which is the source of the last distractor; under US GAAP no such choice exists.
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