Notes Payable CFO or CFI

Hello,

When practicing for FRA I encountered a question that included “Increase in Notes payable” as a Increase of CFO. I tought that notes payable was part of CFI not CFO.

Can you help me to understand?

My definition for NP is:

Increase in Notes Payable --> Increases CFF

Decrease in Notes Payable --> Decreases CFF

Someone more knowledgeable should pitch in …

Perhaps referring to calculating CFO from net income via the indirect method? Increases in payable accounts are added from net income to CFO because it is a source of cash.

Right … Increases in Current Liabilities is added to CFO.

EDIT: Isn’t Notes Payable a Non-Current Liability though

Notes payable are source of financing, not as ordinary (trade) payable account. Hence, it may be a GAAP issue with different treatment between standards.

Also, the purpose of issuing notes payable (short term fixed income instrument) may be an improvement of operating cycle and items as an Inventory supply or just bypass of operating cycle (a gap between receivables collection and trade payables) in case it may be consider as CFO rather than CFF.

I still don’t think Notes Payable should be listed in CFO, except for its interest payments … See:

http://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91317959

Notes payable are usually non-interest bearing instruments. They are issued at discount and repurchased back at nominal value.

Difference in accounting standards GAAP=CFO IFRS=CFI or CFO.