Answer to Question #151454 in Accounting for Usman Tariq

Question

Is interest payable and interest expense the same when preparing the cash flow statement?

Answer 1

Solution:

No, interest payable and interest expense are not the same when preparing the cash flow statement.

Interest expense is the amount of interest that was incurred during a particular period of time. Interest expense is normally a separate line item on a company's income statement under the "non-operating or other" category. Since the net income reported on the company's cash flow statement already accounts for the interest expense, the amount paid will not appear as a separate line item on the company's cash flow statement.

Interest payable is the interest amount the company incurred but has not yet paid as of the balance sheet's date. Interest payable is, therefore, a balance sheet item recorded under the current liability account and cannot be recorded on the cash flow statement since no cash has been utilized hence not affecting the cash flow statement account.