Practicing Success
How is previous year's proposed dividend presented in the cash flow statement? |
Deducted from financial activities as a cash outflow Added to financing activities as a cash inflow Added to investing activities as a cash outflow Deducted from operating activities as an expense |
Deducted from financial activities as a cash outflow |
In the cash flow statement, the previous year's proposed dividend, once it is declared and approved by shareholders, is presented as a cash outflow under the "Financing Activities" section. The financing activities section of the cash flow statement deals with transactions related to the company's capital structure, including the issuance of shares, payment of dividends, and other activities that affect the company's financial structure. Since the declared dividend represents an outflow of cash from the company to its shareholders, it is considered a financing activity when it is eventually paid. When the previous year's proposed dividend is declared and approved, it becomes a financial obligation, and its payment is part of the company's financing activities. Therefore, it is deducted as a cash outflow under financing activities to reflect the movement of funds associated with the distribution of dividends. |