Question

In case of other enterprises cash flow arising from interest paid should be classified as cash flow from ______ while dividends and interest received should be started as cash flow from ______.

• A. Operating activities, Financing activities
• B. Financing activities, Investing activities
• C. Investing activities, Operating activities
• D. None of the above

Answer 1

The correct option is B Financing activities, Investing activities

Interest paid and interest and dividends received are usually classified as operating cash flows for a financial enterprises. However, there is no consensus on the classification of these cash flows for other enterprises. It is more appropriate that interest paid and interest and dividends received are classified as financing cash flows and investing cash flows respectively, because they are cost of obtaining financial resources or returns on investments.