Nice try! Except for program loans, cash flows from loan programs must be classified as investing activities. Program loans are distinguished from other types of loans because they are undertaken to provide a direct benefit to individual constituents. Loans recipients in this program are local governments, not individuals. Although the citizens of the government may reap the benefits of the loan program, the local government is the direct beneficiary of the program. Therefore, the loans do not qualify as program loans and are generally shown as investing activities in the statement of cash flows.
Since the agency shows the loan programs as operating activities on the operating statement, the effects of any transactions are present in the calculation of operating income. However, the agency cannot show the transactions arising from the loan program in the operating activities section of the cash flow statement. Therefore, an adjustment is needed in the reconciliation section to tie to cash flows from operating activities.
See Cash Flows From Capital and Related Financing Activities for further review.
