Dividend received by other than financial enterprise is shown in cash flow statement under:

Question

Accepted Answer

The correct option is 2:
For an enterprise that is *not* a financial institution, receiving a dividend represents a return on an investment made in the shares of another company. According to the standard principles of the Statement of Cash Flows (as per accounting standards like IAS 7), the acquisition of long-term investments, such as buying equity shares, is classified as an **Investing Activity** outflow. Logically, the cash flow generated from holding that long-term asset—the dividend received—must be classified as an **Investing Activity** inflow. This approach is essential for providing users with a clear picture of how cash is generated from the acquisition and disposal of non-current assets, separate from the primary, day-to-day revenue-producing activities of the business.

The incorrect option is 1:
**Operating Activities** are reserved for the principal revenue-producing activities of the business and other transactions that are neither investing nor financing. For a non-financial enterprise (like a manufacturing or trading company), the core operating cash flows are from sales of goods or services. Although dividends received are recorded in the Profit and Loss Statement, classifying them as Operating Activities would misrepresent the company's true operational performance. The Investing classification ensures that the cash flow from the core business is not inflated by returns on passive investments.

The incorrect option is 3:
**Financing Activities** deal exclusively with transactions affecting the size and composition of the entity's contributed equity and borrowings. This includes issuing shares, taking on long-term loans, repaying the principal amount of those loans, and the payment of dividends to the company’s *own* shareholders. Receiving a dividend from an external party is an inflow to the company, not a transaction that alters its own relationship with its capital providers, making the Financing category unsuitable.

The incorrect option is 4:
**General Activities** is not a recognized or defined category in the Statement of Cash Flows. Accounting standards universally require all cash flows to be segregated into the three fundamental categories: Operating, Investing, or Financing. The purpose of this mandatory three-part structure is to ensure consistency and comparability across all companies. Therefore, a classification of "General Activities" is technically incorrect and is not accepted for financial reporting.