Hi all,
I was wondering if someone could help me understand how if under US GAAP, that if interest is expensed rather than being capitalized, that financing cash flows are higher. My confusion is coming from the last paragraph given at the end of “Solution to 2” on page 342 of the 2023, Level 1 Volume 3 book. The direct quote is
“If the interest had been expensed rather than capitalised, financing cash flows would have been higher in all three years.”
What is confusing to me is that, to my understanding, US GAAP does not allow for interest to be accounted for in financing cash flows, that it must be in operating activities, and therefore they should not be influenced by expensing / capitalizing interest.
Thank you for your help in advance.