Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › BPP Pedantic: Cash in Transit
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- February 19, 2017 at 9:21 am #373113
I have come across this scenario in a 20 mark question and it confuses me terribly how the double entry is made:
Sophistic’s trade receivables at 30 September 20X8 include $600 000 due from Pedantic which did not agree with Pedantic’s corresponding trade payable. This was due to cash in transit of $200 000 from Pedantic to Sophistic. Both companies have positive bank balances.
The correct double entry:
Cash in transit:
CR Receivables 600
DR Payables 400
DR Cash 200February 19, 2017 at 9:34 am #373114Break it down into 2 separate elements (that’s what I do … it’s too confused for me to do it in one step!)
Deal with the in-transit cash (or goods, as appropriate) first
The adjustment is made in the records of the entity that is receiving the cash (or goods) and, on the face of the question paper, write the record to show the receipt of the asset:
Dr Cash $200,000 (or goods) (I’m going to stop writing “or goods” from now on but I’m sure you get the idea!)
Cr Receivables $200,000Now, before that receipt of cash, Sophistic’s records showed Receivables of $600,000 so after recording the $200,000 cash receipt from Receivables, that Receivables figure has fallen to $400,000 and that now agrees with the corresponding Payables figure in Pedantic
Now we’re in the position to reduce both Receivables and Payables by that reconciled amount of $400,000
This cancelation has no affect neither on the Pedantic figures nor on the Sophistic figures – it’s just not included within the cross-addition when we add the 2 lots of Receivables and the 2 lots of Payables to arrive at the consolidated figures
So, to summarise the two steps we have:
Dr Cash $200,000
Cr Receivables $200,000and we have
Dr Payables $400,000
Cr Receivables $400,000and when we combine the two sets, we arrive at:
Dr Cash $200,000
Dr Payables $400,000
Cr Receivables $600,000 (that’s $200,000 and $400,000)I suggest you tackle this type if issue in the same pedantic (sorry!) way that I do … one step at a time
OK?
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