Resolved: TAX PAID in CASH FLOW STATEMENT

Hi, KIZABI Gabriel

Thanks for reaching out. I appreciate your thoughtful question regarding how to interpret the tax figures in the income statement versus the cash flow statement.

In the income statement, the tax expense reflects what is owed for the period, but it does not indicate the actual cash outflow during that period. The difference between what is reported as tax expense in the income statement and the change in tax payable on the balance sheet (from Year 1 to Year -1) gives you a clearer picture of the cash flow related to taxes.

Here's the step-by-step calculation:

1. Tax Expense (from the income statement) - This is the tax that has been accrued for the period.

2. Change in Tax Payable (Tax payable Year 1 - Tax payable Year -1) - This reflects how much of the tax expense has not yet been paid. A decrease in tax payable means you paid off some previous tax liabilities, while an increase indicates you have accrued more but haven't paid them yet.

3. Actual Cash Paid for Taxes: By using the formula:

   Tax Paid = Tax Expense - (Tax Payable Year 1 - Tax Payable Year -1)

This formula allows you to determine the actual amount that was paid out in cash for taxes during the reporting period.

This adjustment ensures that you account only for the cash that was actually expended during that period.

If you have any further questions or need more clarification, feel free to ask!
Thank you for your kind words about the course. I’m glad you are finding it helpful!

Best,
Your Assistant.