## Ledger Working: Finding Actual Cash Paid for Dividends and Tax

When a CFS question gives opening and closing balances of Dividend Payable or Provision for Tax accounts, prepare a T-account ledger to isolate the cash actually paid during the year. The ledger is the only reliable route — do not guess.

### Dividend Payable Account

Dr side		Cr side
Cash paid (To CIB)	← find this	Opening balance	Given
Closing balance	Given	Dividend declared in P&L/Reserves	Given

Formula: Cash paid = Opening + Declared − Closing

### Provision for Tax Account

Dr side		Cr side
Cash paid (To CIB)	← find this	Opening balance	Given
Closing balance	Given	Current year charge (By P&L)	Given

Formula: Tax paid = Opening + Current charge − Closing

### Where these cash flows appear in CFS

Item	CFS Section
Dividend paid	Financing Activities (outflow)
Income tax paid	Operating Activities (deducted at end)
Dividend received	Investing Activities (inflow)

### Declared vs Paid — The Critical Distinction

Declared = Dividend Payable is credited (liability created). This hits P&L or Reserves in the current year.
Paid = Cash out. Dividend Payable is debited.

If the question states only a prior year dividend was paid in the current year (nothing new declared), then:

No dividend reversal in PBT Step 1
The full dividend paid (= prior year opening payable) appears directly under Financing Activities

Worked example

### Example 1

Provision for Tax Ledger — Illustration 7:

```

Dr Prov for Tax A/c Cr

To CIB (paid) 50,000 | By Balance b/d (Opening) 70,000

To Balance c/d

(Closing) 1,00,000 | By P&L (charge CY) 80,000

1,50,000 | 1,50,000

```

Tax paid in cash = ₹50,000 ✓

### Example 2

Dividend Payable Ledger — Illustration 18:

```

Dr Dividend Payable A/c Cr

To CIB (paid) 1,50,000 | By Balance b/d 60,000

To Balance c/d By P&L (declared) 90,000

(Closing) — 0 |

1,50,000 | 1,50,000

```

Dividend paid in cash = ₹1,50,000; classified under Financing Activities.

### Example 3

When only prior dividend is paid (no current-year declaration):

Opening Dividend Payable = ₹1,00,000; No new dividend declared; Closing = ₹0

Cash paid = ₹1,00,000 → Financing outflow

PBT reconciliation: No dividend add-back required (nothing was charged to current P&L)

⚠️ Common exam mistakes

Showing both the declared amount AND the paid amount as separate line items in CFS — only the cash paid (from ledger working) belongs in CFS
Using the current-year tax provision charge as 'income tax paid' — always prepare the Provision for Tax ledger to isolate actual cash
Omitting the opening balance when building the ledger — both the opening balance and the current-year charge sit on the Cr side
Placing income tax paid under Financing Activities instead of Operating Activities
Forgetting that if opening dividend payable exists and nothing new is declared, the full opening balance is the cash paid in the current year

Reference:

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

Ledger Working: Dividend Payable Account and Provision for Tax Account

Worked example

⚠️ Common exam mistakes