BPP Pedantic: Cash in Transit

Break 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 $200,000

Now, 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 $200,000

and we have

Dr Payables $400,000
Cr Receivables $400,000

and 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?