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:
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).
What about the income statement?
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?