✏️+🎥Introduction to the Statement of Cash Flows🟢

Responses

1. 

   Jesse Estall 22 July 2025

   It looks like the direct method for the operating section was skipped. Looking at How to Prepare the Operating section video.

   1. 

      Maroun, CPA 22 July 2025

      Hello Jesse,

      The direct method for the operating section is no longer required for the CPA exam, so it has been intentionally removed from the CPA supplemental courses. However, we still cover it thoroughly in the intermediate accounting course. For your convenience, you can access it here:

      https://farhatlectures.com/courses/intermediate-accounting-course/lessons/%f0%9f%92%a1chapter-22-statement-of-cash-flows/topic/%f0%9f%8e%a5direct-method-operating-section-statement-of-cash-flows/

      Let me know if you need anything else!

2. 

   Imran Leghari 25 October 2025

   In video of introduction of cash flow statement, its shows inflow of cash from operating activities includes cash inflow from dividend revenue and interest revenue, whereas in some other study notes, i have read that dividend revenue is part of investment activities because it comes from investment which also part of investing section in cash flow, please explain. thank you.

   1. 

      Maroun, CPA 27 October 2025

      Hello Imran,

      The confusion often comes from government (GASB) vs. corporate (U.S. GAAP/FASB) rules.

      • Corporate (FASB / ASC 230) — what the video shows:
      Dividends received = Operating inflow
      Interest received = Operating inflow
      Interest paid = Operating outflow
      Dividends paid = Financing outflow

      • Government (GASB 9) — proprietary funds have 4 sections:
      Operating, Noncapital financing, Capital & related financing, Investing.
      Under GASB:
      • Interest & dividends received → Investing cash flows.
      • Interest paid → Financing (classified between Noncapital financing or Capital & related financing depending on the related debt).
      • Governments generally don’t pay “dividends” like corporations.

      It is worth mentioning that IFRS rules are also different:
      • IFRS (IAS 7): policy choice with consistency:
      Interest received / Dividends received → Operating or Investing (choose and apply consistently).
      Interest paid / Dividends paid → Operating or Financing (choose and apply consistently).

      The video reflects U.S. GAAP.

      I hope this makes sense!

3. 

   Ali 30 April 2026

   In preparing operating cash flow, do we add dividends received to net income?
   I had a question on Becker with a dividend received amount that was not added to the net income with the note “when using the direct method, we do not add dividends received separately to operating cash flows because dividends received are already included in net income” so is this a general rule?

   1. 

      Maroun, CPA 1 May 2026

      Hello Ali,

      Yes, dividends received are classified as operating cash inflows.

      The key is to separate direct method from indirect method:

      Indirect method:
      You start with net income. Since dividend income is already included in net income, you normally do not add it again separately. Otherwise, you would double count it.

      Direct method:
      You do not start with net income at all. You list the actual cash flows from operations directly. So if dividends received are being shown, they would appear as an operating cash inflow line, not as an “add-back to net income.”

      Thus, the short answer is:
      Indirect method → do not separately add dividends received to net income
      Direct method → show dividends received as an operating cash inflow if the question is asking for the direct presentation of CFO

      Under the current FAR blueprint, the CPA exam tests the indirect method for the statement of cash flows, so Becker was referring to the indirect method when it said dividends received are not added separately to net income. What is added/deducted separately is the change in the dividends receivable as part of the balance sheet adjustments to net income.

      Hope this helps!