Dividends paid are shown as which of the following on the cash flow statement?

Dividends paid are shown as which of the following on the cash flow statement?

• A. Cash inflow
• B. Financing activity
• C. Cash outflow
• D. Non-cash item

Answer: (C)

Dividends paid are a financing activity because they are a distribution of earnings to shareholders and affect the company’s capital structure. The cash flow statement groups cash movements into operating, investing, and financing activities; financing activities include actions with owners and lenders—such as issuing or repurchasing stock, borrowing or repaying debt, and paying dividends. When dividends are paid, cash goes out, so it appears as a cash outflow in the financing section. It isn’t an operating cash outflow (which comes from core business activities) and it isn’t a non-cash item, since it involves actual cash movement.

Dividends paid are a financing activity because they are a distribution of earnings to shareholders and affect the company’s capital structure. The cash flow statement groups cash movements into operating, investing, and financing activities; financing activities include actions with owners and lenders—such as issuing or repurchasing stock, borrowing or repaying debt, and paying dividends. When dividends are paid, cash goes out, so it appears as a cash outflow in the financing section. It isn’t an operating cash outflow (which comes from core business activities) and it isn’t a non-cash item, since it involves actual cash movement.