IFRS allows more options in where you can classify different cash flows: Interest received: operating or investing Interest paid: operating or financing Dividends received: operating or investing Dividends paid: operating or financing So how do you decide on exactly which section to classify any of these cash flows when the question does not tell you whether to use US GAAP or IFRS? eg. Cash received from customers: $100,000 Cash paid to suppliers: $50,000 Interest paid to creditors: $5,000 What is the operating cash flow: $50,000 or $45,000?
Presumably they’d tell you or else there is no way to answer the question…
I have come across many questions where they don’t tell you which to use and you must make a judgment call. I am hoping there is some simple rule I have missed that will clear this up. Maybe interest on long term loans/bonds classify as financing and interest on short term bank lines of credit classify as operating? Something like that for each of the 4 cases.
By default if it is not given in the question then it’s IFRS, and most likely if it is IFRS then it won’t be classified as operating if the same can be done under US GAAP. That’s how I feel question makers are going to test and I have seen questions but I think you have to make a judgement call from the answer choices. Two answer choices one with finance/investing and other with operating will never be given. If it is given, definitely the question itself it wrong.