Notes Payable, Operating or Financing Activities

[Reineir]

Hi,
Are notes payable considered to be CFO or CFF?
TO add: Have i understood correctly that CFI and CFF are not included in the income statment?
Thanks

 

[Reineir]

Let me rephrase that, CFI and CFF do not flow from the Cash Flow Statement, correct?

 

[spirit]

When income statement is prepared it consists of all the day to day activities. Bill payable are day to day business expense, so it will be part of operating expense and would be shown in income statement.
When a Cash flow statement is prepared, all the cash flows that are incurred are recorded.
Total cash flow = CFO+ CFI+CFF

 

[cpk123]

CFO, CFI and CFF all flow through the Cash flow statement.
CFI and CFF usually do not show up in the Income statement.
CFI –> You might find Purchase / Sales of Equipment listed either as “Notes” or you have to calculate for those using pieces of info in the PPE section of the Balance Sheet and the footnotes.
Changes in Notes payable would go into the CFO – since it is a Current liability.
LTD would be a CFF item.
CP

 

[forumreader]

Think of the CF statement as actual flows (changes in cash) that link the beginning balance of cash to the ending balance. Under the direct method, for accounts payable, if the payable amount increased from one period to the next, that means that the company did not pay out as much cash to suppliers as it was able to defer. So you would subtract the increase in accounts payable from COGS (because they didn’t pay out that amount from the cash they earned) under the direct method of figuring CFO.
For the indirect method, start with net income. An increase in payables would be added back to net income (I think of the indirect method as starting from the bottom of the IS statement, so it’s the opposite of the direct method).
CFI and CFF are on the cash flow statement. They are usually (always?) listed after CFO. In the readings, there is not as much focus on CFI and CFF becasue there is only one way of reporting them, as opposed to the direct/indirect methods for CFO. Does this answer your question?

 

[Reineir]

Thanks for the reply CP, cleared things up. One other question….. with regards to preparing the cash flow statement and adding back non-cash expenses. I know that one adds back non-cassh expenses such as depreciation, amortization and depletion..but how about the expense account Bad Dedt expense, would that account also be added back into the CFS?
Cheers

 

[Reineir]

Yes, thanks forumreader. Much appreciated.

 

[forumreader]

Using the indirect method, any “provision for losses” will be added back to net income

 

[Giristide]

The company pays an interest on note payable so it would considered the principal would be classify and CFF and the interest as CFO. Most of the activities for which the company pays an interest would be classified as CFF.