This video shows how to calculate the cash paid for interest.

Cash paid for interest is presented in the operating section of the Statement of Cash Flows when a company uses the direct method. Cash paid for interest is presented as supplementary information when a company prepares its Statement of Cash Flows using the indirect method.

You obtain the cash paid for interest by converting the interest expense from the Income Statement to a cash-basis. This is done using the following formula:

Cash Paid for Interest = Interest Expense + Decrease in Interest Payable – Increase in Interest Payable + Amortization of Bond Premium – Amortization of Bond Discount