Operating cash flows would not include:
Mutiple Choice
A Interest paid.
B Interest received.
C Dividends paid.
The correct answer and explanation is:
The correct answer is C. Dividends paid.
Operating cash flows refer to cash inflows and outflows related to the core business activities of a company. These flows are critical for assessing the day-to-day financial health and operations of a business. According to accounting standards like the Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), operating activities include the primary revenue-generating activities of the company, such as sales and expenses related to production, marketing, and administration.
Interest paid (A) and interest received (B) are considered part of operating activities because they directly relate to the costs of financing operations. Interest payments are a result of borrowing money for business activities, and interest receipts typically relate to investments made as part of the company’s operating decisions.
On the other hand, dividends paid (C) are classified as a financing activity rather than an operating activity. Dividends represent a distribution of profits to shareholders and are a way for the company to return capital to its investors. Since dividends are not directly related to the core operations of a business but rather to financing decisions, they do not fall under operating cash flows. They are typically reported separately under financing activities in the statement of cash flows.
In summary, operating cash flows focus on activities directly tied to the company’s ongoing business processes, such as revenue from sales and payments for services or goods. Interest paid and received are included in these operations, while dividends paid are excluded and classified under financing cash flows.