Question

Dividends received are classified as operating activities cash flows, while dividends paid are classified as financing activities cash flows because dividends received increase _____, and dividends paid decrease ____.

Answer 1

Answer:

1) cash on hand (bank) - operating acitivites 2) cash on hand (bank) - finance activities

Explanation:

Dividends received increases the amount of cash flow available. Thus on the statement of cash flows it's recorded as an inflow of cashflow under operating acitivities.

Dividends paid are viewed as financing activity and since it's an outflow of cash (money leaving the entity) it is recorded as decrease in finance activities.