Answer (B) is correct . Credit card interest incurred is classified as interest expense on the income statement, which in turn reduces equity on the balance sheet by reducing retained earnings. Cash payments to lenders and other creditors for interest, e.g., credit card interest payments, are to be classified on the statement of cash flows as an outflow of cash from operating activities.
Answer (A) is incorrect because The cash flow would be considered as operating, not financing.
Answer (C) is incorrect because The cash flow would be considered as operating, not financing.
Answer (D) is incorrect because The payment of interest is an expense that will decrease retained earnings on the balance sheet.
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