Are loans made to other businesses recorded in the investing or financing section?
If a company loans money (cash outflow) to another independent company or entity, then the activity would be recorded in the investing section of the cash flow statement. This captured in #2 in the visual below. The rationale is that the company will get a return in the form of interest on the loan, which qualifies the loan as an investing type activity.
If the company were to borrow money from another company, the cash inflow would be recorded as a financing activity.
Back To All Questions
You might also be interested in...
-
How do changes in prepaid expenses impact cash flow?
When the prepaid expense balance increases, that means the company has a cash outflow for expenses that have not yet been recognized in the income statement. An example that you might see on the CPA exam might indicate that if the company prepays rent for 12 months, the prepaid rent balance will increase for the...
-
How does a change in accrued liabilities impact cash flow?
When accrued liabilities increase, that means that the company recognized the expense in the income statement but has not actually paid cash for those expenses yet. Therefore, an increase in accrued liabilities (and really any liability) results in a cash inflow, while a decrease in accrued liabilities results in a cash outflow.
-
How is deferred revenue reflected on the cash flow statement?
Deferred revenue, also referred to as unearned revenue, is a liability (current or non-current) that is recorded when the company receives cash from customers but is not yet able to recognize the revenue. The cash flow impact from changes in deferred revenue is reflected in the operation section of the cash flow statement. When deferred...
How do changes in prepaid expenses impact cash flow?
When the prepaid expense balance increases, that means the company has a cash outflow for expenses that have not yet been recognized in the income statement. An example that you might see on the CPA exam might indicate that if the company prepays rent for 12 months, the prepaid rent balance will increase for the...
How does a change in accrued liabilities impact cash flow?
When accrued liabilities increase, that means that the company recognized the expense in the income statement but has not actually paid cash for those expenses yet. Therefore, an increase in accrued liabilities (and really any liability) results in a cash inflow, while a decrease in accrued liabilities results in a cash outflow.
How is deferred revenue reflected on the cash flow statement?
Deferred revenue, also referred to as unearned revenue, is a liability (current or non-current) that is recorded when the company receives cash from customers but is not yet able to recognize the revenue. The cash flow impact from changes in deferred revenue is reflected in the operation section of the cash flow statement. When deferred...
