Refund of income tax is the part of __________a)Financing Activitiesb)...
Operating activities are the functions of a business directly related to providing its goods and/or services to the market. These are the company's core business activities, such as manufacturing, distributing, marketing, and selling a product or service.
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Refund of income tax is the part of __________a)Financing Activitiesb)...
It is because when we are deducting the tax from the operating profit refund of tax is added to the tax because it is an inflow of cash in the organisation
Refund of income tax is the part of __________a)Financing Activitiesb)...
Refund of income tax is part of Operating Activities.
Explanation:
Operating Activities are the main revenue-generating activities of a business. They involve the day-to-day operations of the company, such as sales, purchases, and expenses. Income tax refunds are a result of overpayment of taxes previously paid by the company. When a company overpays its income tax, it can file for a refund to receive the excess amount back.
Refund of income tax falls under the category of operating activities for the following reasons:
1. Direct impact on cash flow: When a company receives a refund of income tax, it directly impacts the cash flow of the business. The refund is usually received in the form of cash, which is an essential component of operating activities.
2. Reversal of tax expense: Income tax is considered an expense in the financial statements. When a company receives a refund of income tax, it effectively reverses the tax expense that was initially recorded. This reversal is reflected in the income statement, which is a part of the operating activities.
3. Related to day-to-day operations: Income tax refunds are directly related to the company's day-to-day operations. They are a result of the company's tax planning and payment activities. Therefore, they are considered a part of the operating activities.
4. Reported in the operating section of the cash flow statement: In the cash flow statement, income tax refunds are reported in the operating section. This section includes all cash flows related to the core operations of the business, including sales, purchases, and expenses.
In conclusion, income tax refunds are considered a part of operating activities because they directly impact the cash flow, reverse the tax expense, are related to day-to-day operations, and are reported in the operating section of the cash flow statement.
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