Hey Guys,
Please can anyone clarify extensively why dividend received and interest received/paid are classified as “operating cashflows” under U.S GAAP?
My understanding is that, classification of items under the cashflow activities is based on the “Nature/Operations of Business/Firm”
Can anyone please clarify? May there is something am missing out.
Regards.
Yeancah.
Thanks for the clarification.
Following your example, the transaction is viewed from the perspective of the financing firm not the other party. how will the other party record the transaction in their cashflow statement?
Many thanks in advance.
Regards
Howdy!
Alas, there is no _ logical _ reason for it (in the sense that, if you forget it, you can think about the reasoning and come up with the right answer). This is one that you simply need memorize for US GAAP.
Also, remember for US GAAP that interest paid (on the cash flow statement) is CF_ O , but interest expense (on the balance sheet) is a _ nonoperating expense. Sigh.
Nope, you’re not missing anything: it’s just the silly US GAAP rules. No reason, just rules.
Back atcha!
My pleasure.
Was hoping there would be a good way of learning Exhibit 1 from reading 27, but seems like… alas.
I guess the way that I’m going to try to memorise it is… if you’re receiving something (dividends or interest) it’s like getting a return on your investment whereas if you pay something (dividends or interest) it’s like financing your investments if that makes sense.
All the other ones are operating except for dividends paid which are Financing.