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Hello Sir, I need help. Transactions beetween Savannah’s and Plateau:Savannah trade payable account (in the records of plateau ) of 700000$ does not agree with Plateau’s trade receivables accounts(in records of Savannah) due too CIT paid by Plateau.
This transaction was recorded:
Dr Cash 400
Cr Receivables 400Dr Current liab. 700
Cr Receivables 700Second case:
Sophistics trade receivables 600000$ due from Pedantic which did not agree with Pedantic’s trade payables. This was due to CIT of 200000$ from Pedantic to Sophistic.This transaction was recorded:
Dr Cash 200
Dr Current liab. 400
Cr Current liab. 600I don’t see difference between this two transactions, please help me! Does it matter who has receivable or liability Parent or Subsidiary? Does we treat it different?
Thank you!
In Plateau’s case, the figure that we are given ($700,000) is in the records of the entity that has made the payment
So, when Plateau sent the money to Savannah, Plateau will have effected the double entry in Plateau’s own records so the figure we are aiming to cancel is that $700,000 ie the figure AFTER the payment has been recorded
In the case of Pedantic and Sophistic, the figure we are given ($600,000) is in the records of the receiving entity, Sophistic
So, although Pedantic will have recorded the payment, Sophistic has not yet recorded it and, when it IS received by Sophistic, the entry will be (and this is different from the entry that you have posted!)
In Sophistic’s records:
Dr Cash $200,000
Cr Receivables $200,000And that brings the receivable down to $400,000
So now we can cancel that $400,000 from both combined receivables and combined payables
The difference between the two questions is the location of the figure in the records
In the case of Plateau the start figure is given in the records of the entity that has made the transaction (sent the money) whereas …
… in the case of Pedantic the start figure is given in the records of the entity that has not yet received the transaction
Hint: it may help you to open two T accounts, a receivables account in one set of records and a payable account in a different set of records
Try that approach and see if it works for you
OK?
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