A person wonders why the profit after tax is not the same as the cash flows from operating activities. Explain to a person two reasons why these two numbers are usually different and provide an example for each difference?

A person wonders why the profit after tax is not the same as the cash flows from operating activities. Explain to a person two reasons why these two numbers are usually different and provide an example for each difference?

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter2: Income Tax Concepts

Section: Chapter Questions

Problem 5DQ

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Concept explainers

Deferred Tax

Deferred tax is an estimated future tax which is made while preparing accounts. It is estimated as a result of past and present transactions in the financial statements. It is not the actual tax which needs to be paid or refundable from the revenue authority, it is an accounting entry. It exists because of the difference between accounting profits and taxable profits.

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QUESTION:

Definition Definition Net amount of cash that an entity receives and expends over the course of a given period. For a business to continue operating, positive cash flows are required, and they are also necessary to produce value for investors. Investors in particular prefer to see growing cash flows even after capital expenditures have been paid for (which is known as free cash flow).

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