I thought I had this clear, but I was confused when I read something contradictory today. Interest received, according to GAAP, is always an operating expense, no? And under IFRS, it can be operating or investing. Earlier today, I don’t even remember now if it was on an exam or in the textbook, it said that since a manufacturing company is not in the business of lending money, that interest received should be under investing, rather than operating–Does that hold true with GAAP?
its not a cash flow thing. interest received under gaap is always an operating cashflow. however, if it is a manufacturing company the interest is part of investing business activity - not investing cash flows but as a line item as part of non-operating income.
+1 when i came across this i was like WTF, never heard of investing part of income statement before, and I passed CPA…
The Question was For a manufacturing company and for a financial services company, is interest expense most likely classified as an operating or non-operating component of income? Manufacturing --------------Financial Services a) Operating-------------------Operating b) Operating-------------------Non-operating c) Non-operating-------------Operating d) Non-Operating------------ Non-Operating and after the points made above it’s not an issue of CFO, it’s an issue of the component of income. And we’re looking at C for the answer… They always screw you up when they ask you to answer logically. (for me a lot of the accounting rules don’t come first nature, where as this is obvious as long as i read it right and don’t over think it)
Say for the manufacturing firm, the loan was secured for operating purposes (i.e to finance working capital), will it still be classified under non-operating?