Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Cash in transit
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- November 16, 2017 at 9:08 am #416065
“Strata’s current account balance with Paradigm at 31 March 2013 was $2·8 million, which did not agree with Paradigm’s equivalent receivable due to a payment of $900,000 made by Strata on 28 March 2013, which was not received by Paradigm until 3 April 2013”
Well from the above into as i can interpret the strata had a payable of 2.8m and which did not agree with paradigm because of 900,000 in transit so once received paradigm,s receivables balance should be 900,000 less than 2.8m.But the examiner is adding it instead why?
Also when consolidating the examiner is subtracting 3.7m .Well cannot find the logic behind this accounting treatment.November 16, 2017 at 9:29 am #416075“…so once received paradigm,s receivables balance should be 900,000 less than 2.8m.”
NO! When that $900,000 is received by Paradigm the 2 current accounts will be the same at $2,800,000
So when Paradigm receives that cash in transit, the journal entry will be to:
Dr Cash
Cr Current Account with StrataOpen 2 T accounts, the first is in Paradigm’s records and then the second is in Strata’s records – remember, these are sets of records that are hundreds of miles apart so we’re not looking at double entry between these 2 T accounts
In the Strata records, in the Current Account with Paradigm, we DID have a balance owing of $3,700,000 and then, just before the year end, Strata paid $900,000 and effected the double entry:
Dr Current Account with Paradigm $900,000
Cr Cash $900,000and, in Strata’s records, that left a balance payable to Paradigm of $2,800,000 (per the question)
But Paradigm hasn’t received this cash but when it IS received, Paradigm will:
Dr Cash $900,000
Cr Current Account with Strata $900,000and when that entry is put through there will remain a balance receivable from Strata of $2,800,000
So how much did the Paradigm records show BEFORE this adjustment? It must have been $3,700,000 receivable so that, when $900,000 is deducted, it will leave just $2,800,000 receivable
So the adjustments for you to make are:
In Paradigm:
Dr Cash $900,000
Cr Current Account with Strata (Receivables) $900,000and then cancel the remainder
Reduce group payables $2,800,000
Reduce group receivables $2,800,000In summary:
Paradigm’s receivables have fallen by $3,700,000
Paradigm’s cash has increased by $900,000, and
Strata’s payables have fallen by $2,800,000and, from the group perspective
Dr Group Cash $900,000
Dr Group Payables $2,800,000
Cr Group Receivables $3,700,000Is that OK now?
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