Dividends Paid under Financing or Operating Activities?

by Shamil Hassan
(Islamabad, Pakistan)

DividendsQ: Does the payment of dividends go under financing activities or the operating activities?


A:
From what I understand the usual practice is to put it under cash flow from operating activities. The reason for this is that it could be considered to be a regular part of one's operations or operating activities - one usually pays dividends once a year to one's investors (the business owners) as a standard company practice.

Sample Cash Flow Statement

However, I have also heard that it is possible to place dividends paid under cash flow from financing activities. This also makes sense as the investors were the source of finance for the business, and paying them dividends is a sort of repayment to them. Since repayments of loans to the business also go under this section (cash flow from financing activities), it seems logical to also include dividends paid to investors here too. Both investments and loans are sources of finance, so paying them should also go under this section.

I would check with your accounting authority (teacher, lecturer or accounting standards board) in your area as to what they recommend as the preferred choice here.

Best,

Comments for Dividends Paid under Financing or Operating Activities?

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dividends are paid under financing activities
by: clever

Dividends are paid under financing activities since they (the financiers of the entity) provided finance for the business and this is not a daily or operating activity of the business. This money does not arise as a result of the business interacting with its customers. It is a smart way to include dividends under Financing activities since the root and reason of giving out dividends arise as a result of financing activities. However, it is not wrong to take it as an operating activity since this will never alter the cash flow of the business in any way.

Wording on this post is incorrect
by: Anonymous

Dividends RECEIVED from their investments are part of CFO, but Dividends PAID are part of CFF.

Cash flow statement section
by: Dr accounting

Companies issue stock as a way to raise capital. So it's a financing source. Dividend payments would be shown in the financing activities section of the cash flow statement.

The operating section is for normal expenses relating to revenue generation. So paying of dividends would not go here. It is not directly related to revenue generation. And belongs under financing activities.

dividends
by: Anonymous

under operatinq activities because we get income

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