Question

Under ASPE the receipt of interest on loans would be reported on a statement of cash flows under the:

a) operating activities
b) no activities because interest received on loans would not be reported on a statement of cash flows
c) financing activities
d) investing activities

Answer 1

Option (a), Interest received on loans is categorized under operating activities on a statement of cash flows according to ASPE, as it pertains to the primary income-generating activities of the entity.

Step-by-step explanation:

Under Accounting Standards for Private Enterprises (ASPE), the receipt of interest on loans would be reported on a statement of cash flows under operating activities. This is because interest received on loans is considered part of the entity's income-generating activities, which are typical of its operations. Interest received is similar to revenue from sales or services, which are all considered operating cash flows.

To provide context on the importance of categorizing cash flow accurately:

• The receipt of interest on loans is indicative of the company's operational profitability and cash generation capacity.
• Incorrectly classifying these cash flows could mislead stakeholders about the source and sustainability of the company's cash, affecting investment and lending decisions.