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Hi, Sir!
Question states that :
Plastik had a trade receivable balance owing from Subtrak of $1.2 million as at
30 September 20X4. This differed to the equivalent trade payable of Subtrak due to a
payment by Subtrak of $400,000 made in September 20X4 which did not clear
Plastik’s bank account until 4 October 20X4. Both entities have overdrafts rather than
positive cash balancesShouldn`t we provide for this operation as:
1) DR Cash 400
CR Receivable 400.
2) DR Payable 800
CR Receivable 800So that decreasing both current assets and liabilities by 800. I guess book has miscalculated this as reducing both of them by 1200
Hi,
The receivable and payable balances look to be adjusted correctly, but just be careful with the cash balance. The question states that the companies have overdrawn bank balances, therefore the cash receipt by Plastik will reduce the overdraft (current liability) as opposed to increase the bank balance (current asset).
Thanks
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