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Which one of these is handled differently in calculating cash flows for accounting versus financial purposes?...

Which one of these is handled differently in calculating cash flows for accounting versus financial purposes? deferred taxes or interest expense?

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Answer #1

Correct answer is option : Interest expenses.

Interest expenses has different treatment under accounting and finance purpose. Under accounting its shows as cash flow from financing activities and interest component of this goes to cash from operating activities.

Under Finance (Capital budgeting) borrowing is considered as part of capital and cost of capital is adjusted toward the borrowed capital. Which mean no adjustment is being made for interest while computing cash flow but we make adjustment to Weighted Average cost of Capital.

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