Why does my loan seem to be generating cash after the initial loan is created?

Suppose you created a loan for $10,000 and are not making regular payments on it. The line on your cash flow statement labeled “Cash from Notes Payable” will show the initial inflow of $10,000 cash on the day of the loan, but you might wonder why it keeps showing additional inflows of cash every month afterwards for the entire duration of the loan. What's happening?

This is normal. Your income statement is showing that you are paying interest on the loan every month. That will be included as a cash outflow in your profit (or loss) on the Net Cash from Operations at the top of your cash flow statement. However, you are not actually paying that interest with cash. To offset it, we include a cash inflow on the Cash from Notes Payable line of your cash flow statement. So, the net is that there is no effect on cash.

Put another way, you are actually borrowing the interest every month (and adding to the loan principal).

Related Questions:

How can I see my cash flow statement?

What does the Proceeds from Notes Payable line on the cash flow statement mean?

How can I see my income statement?

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