Using the indirect method to prepare the statement of cash flows,dividends paid during the year are:
A)subtracted from net income in the operating activities section.
B)added to net income in the operating activities section.
C)shown as a cash outflow in the financing activities section.
D)shown as a cash outflow in the investing activities section.

Question

Quizplus · Accepted Answer

Dividends paid during the year are considered a cash outflow from financing activities since they are a distribution of profits to shareholders. In the indirect method of preparing the statement of cash flows, non-cash items such as depreciation and changes in working capital are adjusted from net income to arrive at the cash flow from operating activities. Dividends paid are not adjusted in this way and are shown separately as a cash outflow in the financing activities section.

Using the Indirect Method to Prepare the Statement of Cash