Hi everyone,
Why would the sale of long term receivables increase cash flow from investing activities?
It might, and it might not.
It depends on whether you sell the receivables with recourse, or without recourse.
Where did you get this question?
Got it from an old CFAI Mock exam. There was no mention of it being with or without recourse in the solution.
If you sell receivables without recourse, then the cash flow should be CFO.
If you sell receivables with recourse, then the economic substance of the transaction is that it’s a loan with the receivables being put up as collateral; the cash flow should be CFF.
I don’t see how this could ever be CFI.
Thank you.
You’re quite welcome.