Interest expense appears in the operations section of the statement of cash flows because:
A) firms cannot operate without incurring interest expense.
B) its payment is not within managerial discretion.
C) it is paid to finance a firm's inventory.
D) none of the options; interest expense appears in the financing section of the statement of cash flows.

Question

Quizplus · Accepted Answer

Interest expense is a necessary expense for most firms, but it is not a direct cost of operating the business. Also, the timing and amount of interest payments are typically determined by contractual agreements and are not subject to managerial discretion. Therefore, interest expense is considered a financing activity and appears in the financing section of the statement of cash flows, not in the operations section.

Interest Expense Appears in the Operations Section of the Statement