"income tax paid in advance"How is it shown in cash flow statement?
Hi Aditya
Income Tax paid in advance is deducted from the amount of provision for tax maintained for current year and shown as an addition to the Net Profit (if no adjustment relating to tax is given in the question).
Reason for deducting Advance Tax from Closing Provision for tax
As we know, the amount of tax payable (on current year's income) is paid in the following year and we also reserve an amount for provision for tax to be paid in the next year.
Advance tax is the amount of tax that is paid in the current year but actually belongs to the next year.
So, it can be said that both of them belongs to the following year.
Hence, we deduct the amount of tax already paid to the govt. from the Provision made for payment of tax in the next year. This net amount is shown as Tax made and added to the Net Profit.
Income Tax paid in advance is deducted from the amount of provision for tax maintained for current year and shown as an addition to the Net Profit (if no adjustment relating to tax is given in the question).
Reason for deducting Advance Tax from Closing Provision for tax
As we know, the amount of tax payable (on current year's income) is paid in the following year and we also reserve an amount for provision for tax to be paid in the next year.
Advance tax is the amount of tax that is paid in the current year but actually belongs to the next year.
So, it can be said that both of them belongs to the following year.
Hence, we deduct the amount of tax already paid to the govt. from the Provision made for payment of tax in the next year. This net amount is shown as Tax made and added to the Net Profit.