## Tax Treatment in Cash Flow Statements
Tax appears at two different points and must not be confused.
### Two Distinct Tax Figures
| Item | Where it appears | What it represents |
|---|---|---|
| Tax Accrued / Provision created | Used only to derive PBT (if PBT missing) | Non-cash accrual in P&L |
| Tax Paid (actual cash) | Deducted under Operating Activities | Real cash outflow |
### Ledger Method to Find Tax Paid
Balance the Provision for Tax / Income Tax Payable ledger:
```
Provision for Tax A/c
─────────────────────────────────────────
Cash Paid (CIB) ? | Opening Balance X
Closing Balance C | P&L Provision Y
─────────────────────────────────────────
| Total X+Y
```
Tax Paid = Opening Balance + Current Year Provision − Closing Balance
### Default Assumption
If a question gives neither the tax paid nor the closing provision balance:
> Assume: Provision created in the current year = cash paid in the current year (i.e., there is no opening or closing balance in the Tax Payable account).
This assumption is standard unless the question specifies otherwise.
### Why Provision ≠ Paid (Normal Case)
In reality, tax is assessed and accrued in Year 1 but paid in Year 2. So:
- Year 1: Provision created → cash flow impact = zero
- Year 2: Previous year's provision paid → cash outflow appears