CIT & GIT

You’re seriously misinterpreting a printed answer here!

Tell me the question name and / or exam reference eg June 2012

The only situation where cash in transit will be deducted from BOTH receivables and payables is where cash has been sent but has not been recorded as being sent

And that has to be the most outrageous situation that an examiner could possibly set up!

It would mean that cash can leave the premises without being recorded and that’s an impossible proposition … unless the CFO is committing fraud

When cash is paid there has to be a double entered record of that payment:

Dr Something (in this case it would be Dr Payables)
Cr Cash

So now we have cash in transit because it has not yet been received by the payee but it is nevertheless an asset belonging to the group. But that asset is not reflected in any group records – it has been removed from the payer’s records and has not yet been received so its not reflected in the payee’s records

So accelerate the cash into the hands of the payee

Dr Cash
Cr Receivables

And the effect of that in an F7 consolidation question is to now bring the intra-group receivables figure down to the same figure shown in intra-group payables

And that’s the figure we are now able to deduct from both combined receivables and combined payables

And it’s exactly the same reasoning and the same treatment for goods in transit except that instead of debitting Cash we debit Closing Inventory and instead of crediting Receivables we credit intra-group Payables

Does that clear it up for you?