Question: why is interest on loan term debt treated as an operating activitiy? Answer: From: http://www.finance30.com/forum/topics/cash-flow-1 “Outside of the definition, the theory behind dividends and interest is different. Also, the cash used to issue loans is defined as having a separate purpose than the interest. The same goes for cash used in investing and financing which results in dividends. …interest gets thrown into the giant pot of cash indiscriminately, unlike dividends, because the purpose of interest is unclear and immaterial to the purpose of the principal to which it originated. Dividend income has a specific purpose when it is paid to investors and has specific consequences. This is why interest paid, interest received, and dividends received are operating, but dividends paid are considered financing. If you are satisfied with this explanation, there is no need to read on: First, dividends paid are financing because they involve dividends paid to investors for financing the company and dividends received are operating because they do not
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This note was uploaded on 04/20/2010 for the course BUS 212 taught by Professor Wiolliams during the Spring '08 term at Cal Poly.