Debt repayment shows up in the “Cash Flow from Financing” section on the Cash Flow Statement. Why don’t interest payments also show up there?
This is because interest payments are tax-deductible and correspond to the current financial reporting period, so they already appeared on the Income Statement as an expense. Since they reflect a real cash expense and already showed up on the Income Statement, we would double count their impact on the company’s cash position if we were to incorporate them on the Cash Flow Statement again.
On the other hand, while debt repayments are a true cash expense, they do not appear on the Income Statement, so we need to adjust for them on the Cash Flow Statement so as to appropriately reflect the company’s cash position.
The rule of thumb is – If a line item is a cash expense and it has already appeared on the Income Statement, then it should not appear on the Cash Flow Statement again unless we are re-classifying it – once again, this is because we have already captured this line item and its cash impact when we start with net income on the Cash Flow Statement.