If a company uses the indirect method to prepare the statement of cash flows, how will the adjustment to reflect the amount of cash paid for interest be presented on the statement?

Question

Quizplus · Accepted Answer

The adjustment for the amount of cash paid for interest will be for the increase or decrease in interest payable for the period and will adjust net income in the operating activities section. This is because the indirect method starts with net income and makes adjustments for non-cash items and changes in balance sheet accounts to arrive at the amount of cash from operating activities. The adjustment for interest paid reflects the cash paid during the period and is not reflected in the net income figure. Therefore, it must be added or deducted to adjust net income to the amount of cash provided by operating activities.

If a Company Uses the Indirect Method to Prepare the Statement