Final answer:
The change in interest payable is reported in the operating activities section of the statement of cash flows because it is related to the day-to-day expenses of the business.
Step-by-step explanation:
The year over year change in interest payable is reported in the operating activities section of the statement of cash flows. This area reflects the changes in working capital accounts related to the operations of the business.
Explanation
The Statement of Cash Flows is divided into three sections: operating, investing, and financing activities. The interest payable is connected to the expenses of the organization and hence impacts the cash flow from operating activities. As interest is considered an operating cost, even if it is not paid in the same year it is incurred, any change in the interest payable balance will appear in the operating section. When calculating the net cash provided by operating activities using the indirect method, the change in interest payable would be considered when adjusting net income to convert it from the accrual basis to the cash basis of accounting.
In the event of an increase in interest payable, this would be added to net income because it represents a charge that reduced net income but did not use cash. Conversely, a decrease in interest payable implies that more cash was paid out than applied to income, and so it would be subtracted from net income.