Accountancy Part BCash Flow Statement

Dividend paid:

Answer & explanation

Correct answer: option 2

The correct answer is Option (2) → Is always cash outflow from Financing Activities

Payment of dividend is a return to the owners for the capital they supplied, so it is a financing activity. Paying it always takes cash out, so it is an outflow. This holds for a financial enterprise as well as a non-financial one.

Option (1) Can be both outflow and inflow from Financing Activities — Incorrect. Dividend paid can never bring cash in.

Option (3) Can be outflow or inflow from operating activities — Incorrect. Dividend paid is not an operating item for any enterprise.

Option (4) Is an outflow of Operating Activities — Incorrect. It is an outflow, but of financing activities.

NCERT (2026-27 edition):
Interest and Dividend – “… In case of a financial enterprise (whose main business is lending and borrowing), interest paid, interest received and dividend received are classified as operating activities while dividend paid is a financing activity. In case of a non-financial enterprise, as per AS-3, it is considered more appropriate that payment of interest and dividends are classified as financing activities whereas receipt of interest and dividends are classified as investing activities.”