Interest/Dividends paid in the U.S. are CFF. IFRS also allows CFO
Interest/dividends received in the U.S. are CFO. IFRS also allows CFI.
Is this not right? Interest paid in the U.S. is actually operations???
Also the question below:
Company reported sales revenue of $150,000 for the current year. If accounts receivable decreased $10,000 during the year and accounts payable increase $4,000 during the year, cash collections were?
Accounts Payable is a liability in CFO. So i thought you would just add $4,000. I was wrong. The answer is "The change in accounts payable does not affect cash collections. Accounts payable result from a firm’s purchases from its suppliers. i’m getting confused, because you definetely would add $4,000 to Net income to get CFO. Is it because the question is starting at Sales revenue? Can someone help explain!
Under US GAAP Interest paid/recieved is CFO. Dividend recieved is CFO but dividend paid to shareholders is CFF.
Under IFRS Interest/Dvididend paid can be classified as either CFO or CFF. Dividend/Interest recieved can be classified as either CFI(investing) or CFO.
The questions asks what is the cash collections(cash recieved) for the year. So it is the sales + Change in accnt recievables = 150,000 + 10,000 = 160,000
The accounts payable affects cash paid(to suppliers) so while it come under CFO it wouldn’t be part of cash collections. Hope this clears.
A good way to memorize it is that in US GAAP, everything is CFO except dividends paid which is CFF.
In IFRS, we have a choice - whether CFO OR CFF or CFI, depending on the classification of the activities that give rise to them. If you know how to classify their source, then you will know where to classify the interest and dividends as well.