It is necessary to reconcile the opening tax liability to the closing tax liability to reveal the cash flow – the tax paid - as the balancing figure. During the year the tax charged in the statement of profit or loss was $100. Exercise calculating the tax paidĪt the start of the accounting period the company has a tax liability of $50 and at the reporting date a tax liability of $90. The following examples illustrate all three of these examples. For example, when the opening balance of an asset, liability or equity item is reconciled to its closing balance using information from the statement of profit or loss and/or additional notes, the balancing figure is usually the cash flow.Ĭommon cash flow calculations include the tax paid, which is an operating activity cash out flow, the payment to buy property plant and equipment (PPE) which is an investing activity cash out flow and dividends paid, which is a financing activity cash out flow. Computing cash flowsĬash flows are either receipts (ie cash inflows and so are represented as a positive number in a statement of cash flows) or payments (ie cash out flows and so are represented as a negative number using brackets in a statement of cash flows).Ĭash flows are usually calculated as a missing figure. The article will explain how to calculate cash flows and where those cash flows are presented in the statement of cash flows. It is relevant to the FA (Financial Accounting) and FR (Financial Reporting) exams. This article considers the statement of cash flows of which it assumes no prior knowledge.
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