The example in the textbook is if a company buys real estate with 100% financing from the seller. The textbook claims that this is not a cash transaction that has to show up under investing cash flow nor financing cash flow. the logic is that no raw cash has exchanged hands yet.
Just to clarify:
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This transaction will immediatle show up in the balance sheet though, right? We now have new noncurrent assets and some sort of liability (dont know if it’s current or noncurrent).
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What about the income statement?
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Since debt is being taken on, debt repayments will cause interest payments and repayment of principal.
Will the interest payments (outflows of cash) be reported as an OPERATING outflow?
- Will the repayment of principal (outlow of cash) be reported as a FINANCING outflow?
Also, do your answers change based on what the real estate was used for? Is there a difference between a computer company buying land to diversify its holdings and a restaurant company buying real estate so it can open up a new location?