A company pays Rs. 2,00,000 cash to settle its long‑term loan. Under the cash flow statement, this cash outflow should be classified under which activity?
Answer
Financing
The correct answer is Financing — Therefore the outflow is classified as financing activity.
Step-by-step solution
- Identify the nature of the transaction – repayment of a long‑term loan, which is a financial obligation.
- Cash outflows for repayment of long‑term debt are recorded under financing activities.
- Therefore the outflow is classified as financing activity.
Common mistake: Treating the repayment as an investing activity
Concept tested: Classification of financing cash flows
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