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Hi
why is it that when you are working out either tax/interest paid for the period using the +- method, you have minus(-) for opening balances and tac/interest charged for the period and then plus(+) for all closing balances.
this is when not using the T-account format.
Tax / interest payment calculation is = opening balance + charge for year – closing balance.
Is that what you wrote in your post?
Well I have seen in revision kits and text books working it out like the following:
-20(bal bf)
-10(Is charge)
+20(bal c/f)A reverse approach is used for working out ppe as well.
My question is why have – for bal b/f and charge for period.
Thanks
because the difference will represent the outflow of cash. If you owed 20 tax at the start of the year and this year’s profits attract a further 10 tax, that means that in total, if you had paid all your tax, you would have paid 30. However, we know from the carry forward that you still owe 20 of that 30, so the negative flow must be 10. I think that’s possibly the reasoning behind showing the opening figure and the Income statement charge as negatives.
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