How do you do the Direct Cash Flow in Financing Activities?

Is collections of interest part of the financing or investing activities of a statement of cash flow?

• Answer:

  Interest collected on loans advanced to some institution or indivudual becomes the part of financing activities of a statement of cash flow. The reason being that the loan on which interest in collected is the part of financing activities of the company and the interest earned on it increases the value of actual loan and thus the interest becomes the part of financing activities. The another reason that can be attributed is that when installments are received for the loan given, the interest to be received has to be calculated on the amount of loan outstanding on the borrower at the time of closure of accounting books. Therefore, interest received or collected becomes the part of financing activities.