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Hi tutor
I have a questionCan the cash in transit amount be added to current assests instead of deducting from current liabilities? I see its been done both ways in the ACCA answers but I just want to follow one of them to avoid confusions.
It all depends on who is receiving and who is paying the cash and what their bank accounts look like – in debit or in credit
If you are paying me and my bank account shows a positive balance, then the entry that I shall put through is to increase my bank balance and reduce my receivables
But if I’m paying you I shall decrease my bank balance and decrease my payables
In this second situation, let’s say that your bank account showed an overdraft position, when you record the cash that I have just sent to you, you will decrease your liabilities (bank overdraft) and decrease your receivables
There’s no hard and fast rule that you can “always” apply – it depends entirely upon the circumstances of each particular company in each separate question
OK?
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