Rookie Question on Interest
When companies add back interest paid in cash, is there a difference between GAAP interest expense and interest paid in cash? If so could someone please explain what causes this difference between GAAP interest expense & interest paid in cash
I have $100 of Unsecured Notes that pay interest semi-annually at 10% in 2Q & 4Q
GAAP 1Q Interest Expense = $2.50 Cash Interest Expense = $0
GAAP accrues the expense on a straight-line basis throughout the year, whether or not it has actually been paid in cash, in this case $2.50/qtr. Obviously, the company only incurs a cash expense when they wire their interest payment to the lender.
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