Why do we add proposed and interim dividend in cash flow statement as we have already paid them as there is actually outflow of cash?


Payment of dividend is an expense for the business and so while ascertaining the profit for the current year it is considered as a reduction from the profits. 

Now, while preparing a Cash Flow Statement, the starting point is the profit earned during the year (which has taken into account this dividend expense). However, under the first activity, we are require to work out the 'Cash Flow from Operating Activities'. Now, being a financial cost (or you can say a non-operating expense), dividend paid is added back under Operating Activities and shown as an outflow under its correct head i.e. under Financing Activities.

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As we know that the starting point of calculation of operating activities is 'Net profit before tax and extaordinary items'.And proposed and interim dividend are a part of financing activities which reduces the profit.That's why we add these items to arrive at 'Net profit before tax and extraordinary items'.
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Because they are to be paid in the next year We are calculating the cash flow position of the firm for the current year.
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