Cash Flow Statement: Dividends Paid under Financing or Operating Activities?
by Shamil Hassan
Q: Does the payment of dividends go under financing activities or operating activities in the cash flow statement?
A: From what I understand the usual practice is to put it under cash flow from operating activities. The reason for this is that it could be considered to be a regular part of one's operations or operating activities - one usually pays dividends once a year to one's investors (the business owners) as a standard company practice.
However, I have also heard that it is possible to place dividends paid under cash flow from financing activities. This also makes sense as the investors were the source of finance for the business, and paying them dividends is a sort of repayment to them.
Since repayments of loans to the business also go under this section (cash flow from financing activities), it seems logical to include dividends paid to investors in this section too. Both investments and loans are sources of finance, so paying them should also go under this section.
I would check with your local accounting authority (teacher, lecturer, textbook or accounting standards board) as to what their preferred choice is here.
Sorry if you were looking for a definitive answer, this one is not so cut-and-dry.