Quick question:
I was doing an example and was calculating operating cash flow, beginning with net income. I was making the usual working capital adjustments, and according to the solution, no adjustment is to be made to an increase/decrease in notes payable. This surprised me, I definitely thought note payable increases/decreases had to be accounted for when calculating operating cash flow. Why are they not included, is it because they are considered to be near cash since they are so liquid?
Notes payable is accounted for in the financing cash flows on the cash flow statement. You may be confusing notes payable with accounts payable, which is included in operating cash flow.
Notes represent non-operating liabilities - they usually represent short-term, interest-bearing debt. Working capital comprises only of operating liabilities/assets.
Since they’re usually categorized as short-term debt, you do have to account for notes when you calculate FCFE (as part of net borrowing).
Hope this helps.
Edit: And what Chad said. Since notes represent debt, the principal payments/reciepts show up under CFF while the interest payments show up under either CFF or CFO (GAAP vs. IFRS).