In a statement of cash flows, payments of dividends are classified as:
Multiple Choice
Costs and Expenses.
Financing activities.
Operating activities.
Investing activities.
Answer
--Correct Answer = Option #2: Payments of cash dividend are classified as "FINANCING ACTIVITIES"
--Stockholders provide FINANCE to the company by investing in common/preferred stock.
--Payments made to these stockholders in the form of dividend is treated as Cash Outflow under Financing activities.
--Payment of Dividend is NOT an operating activities as it is different from the general operational activities of the business.
--Payment of dividend cannot be classified as Investment activities BECAUSE its not an investment in fixed assets or long term investments.
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