cash in transit

Ok, but it would really help if you were confident with double entry!

Consider the amount of cash and from whence it is flowing (to whither it is flowing)

The company that has sent the cash has already recorded it within its own double entry so we only need consider the company that is to receive the money.

And that’s easy enough! We pretend that the money has already arrived and now we record the double entry that is necessary to record the receipt

So, in the receiving company’s statement of financial position, on the face of the question paper, increase the cash figure and reduce the receivables figure by the value of the cash in transit

I can’t understand your comment that “sometimes the cash in transit is a liability and sometimes it is an asset”

How can cash in transit ever be a liability?

What you are maybe thinking about is the credit entry involved in recording cash in transit Dr Cash and CR RECEIVABLES, but no way is it a liability

The same principles apply to goods in transit – the company sending the goods will have recorded the despatch but the company due to receive them does not yet know about these goods.

Working on the value of the goods (give in the question) pretend that they are just being received immediately before the year end. The double entry to record those goods is:

Dr Purchases
Cr Payables

VERY occasionally we have the situation where goods are being returned (very rare in exams). If, by some unlucky chance you should be faced with this, remember that the “sending” company has already recorded these goods being returned (Dr Payables Cr Purcases)

Now pretend that these returns are received just before the year end and record their receipt:

Dr REVENUE
Cr Receivables

But that is exceedingly rare

Is that better?

First question:

1) question from 4 Dec 2014
P had a treat receivables balance owing from s of 1.2m as at 30.09.14. This differed to the equivalent trade payable of S due to a payment by S of 0.4m made in Sep which didn’t clear P’s bank until 4.10.14. P’s policy for cash timing differences is to adjust the parents financial statements.
A: trade receivables -1.2m
trade payables -0.8m
bank overdraft -0.4m

So, one step at a time …..

Accelerate the cash into P’s records:

Dr Cash (reduce the overdraft) $400,000
Cr Receivables $400,000 bringing the receivable figure down to $800,000

Now cancel the receivable and the payable:

Dr Payables $800,000
Cr Receivables $800,000

or, as above:

Cr trade receivables -1.2m
Dr trade payables -0.8m
Dr bank overdraft -0.4m

Second question:

S’ current account balance with P at 31.03.x3 was 2.8m, on which didn’t agree with P’s equivalent receivable due to a payment of 0.9m made by S on 28.03.x3, which was not received by P until 3.04.x3.
A: trade receivables -0.9m-2.8m
bank -0.9m
trade payables -2.8m

S is making the payment. Accelerate the $900,000 into P’s records, so:

Dr Cash (reduce overdraft) $900,000
Cr Receivables in P $900,000

Now the current accounts agree and, according to the question, the S record’s Current Account with P was $2,800,000 and we haven’t made any adjustment to the S records

So when the current accounts agree (as we’ve just agreed that they do after the cash in transit has been recorded) then we can cancel $2,800,000 receivables against $2,800,000 payables

Or, as above:

CR trade receivables -0.9m-2.8m
Dr bank -0.9m
Dr trade payables -2.8m

Where is there an inconsistency?