A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows (indirect method), this transaction would be reported as a(n)

Question

BlackTom AI · Accepted Answer

This question asks how a borrowing transaction is reported on the statement of cash flows when using the indirect method.
Option 1: 'addition adjustment to net income in the cash flows from operating activities section.' While the indirect method adjusts net income for operating activities, actual cash effects from financing activities (like borrowing cash) are shown in the financing section, not as an operating adjustment. 
Option 2: 'cash inflow from investing activities.' Investing activities relate to the acquisition or disposal of long-term assets or investments, not to financing the business through debt. So this is not correct for a loan.
Option 3: 'cash outflow from investing activities.' This would reflect spending on long-term assets or investments, which is the opposite of borrowing money in this case, and thus inappropriate.
Option 4: 'cash inflow from financing activities.' Financing activities include obtaining cash from issuing debt or equity and repaying principal of debt. A 90-day nontrade note payable represents borrowing cash, which increases cash and falls under financing activities in the cash flow statement. The indirect method requires separating this from operating activities and placing the effect in the financing section.
In summary, the borrowing of cash from a note payable does not affect operating or investing sections directly; instead, it increases the financing activities cash flow. Understanding the classifications of cash flows helps distinguish why this entry belongs in financing activities rather than operating or investing sections. The key concept is that debt financing activities are reported in the financing activities section of the cash flows statement, reflecting changes in long-term liabilities and short-term borrowings.

A company borrows $10,000 and signs a 90-day nontrade note payable. In preparing a statement of cash flows (indirect method), this transaction would be reported as a(n)单项选择题

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