A manufacturing company has an interest expense of 62,000. Is this interest expense: A) operating item? B) non operating item?
Operating of course.
The interest expense is the result of financing activities and would be classified as a nonoperating expense by nonfinancial service companies. I’m confused because I thought INTEREST PAID OR RECEIVED WAS AN OPERATING ITEM. Now I find out that if it a NONFINANCIAL company, interest paid is a NON OPERATING ITEM. Can somebody help me out with this. We can all be assured that there will be a question like this on the exam.
WTF, this same scenario was on a practice exam. Then I see the chart in my head, hmmm, interest paid/received is operating so I check B and pat myself on the back. Then I find out its wrong.
Oh, this is really a simple question… Maybe that’s way I got it wrong. Interest expense/revenue comes after operating activities in the income statement (below operating income/EBIT). That’s what they were asking for… Milos
Milosh, I disagree with you. Of course, it’s just my opinion, and I could be wrong. I think what they want us to know is What is the difference between operating and non-operating items, relating to core business and non core business activity. If this was NOT a manufacturing company and was a financing company, then interest expense would be an operating item.
Yes, of course. I forgot to stress that my conclusion is only valid for manufacturing company. If you have a financial company interest revenue/expenses will be located “above” operating income. Milos
The question is not about CFO.
It refers to Income statements
So, who mentioned anything about CFO? Milos
Dreary, thanks for bringing to my attention the fact that is is about income statements. My brain is Cash Flow trigger happy. When I see INTEREST EXPENSE, my first thought is OPERATING ITEM ON CASH FLOW STATEMENT. What I learned here is that it’s important to know the difference between operating and non operating items on ithe income statements. cheers.
yes, you have to know the format of income statement. Interest expense for a manufacturing company is not part of COGS, neither SG&A. hence its a non-operating, nevertheless still goes thru the Operating Cash flow.
Still goes through CFO in GAAP, under IFRS it will go under CFF… Do they specify GAAP/IFRS in the exam, what should be assumed if nothing’s given?