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Hi, chapter 1 example 1. With regards to the cash pmt in transit $6,500, why are we Dr Cash and Cr Receivables and still taking out the full $11,500 from Payables. Should it be just the 5000 being deducted from payables?
Dr Bank – 6500
Dr Payables – 5000
Cr Receivables – 11500It seams as though we are deducting the 6500 twice from Receivables.
Get two pieces of paper, one as an extract from the accounting records of Ausra and the other as an extract from the accounting records of Danute
Now, forget the fact up that you have a Danute piece of paper in front of you. Focus on being the Ausra chief accountant. Open up three accounts on your piece of paper – Receivables, Cash and Payables – and put in the values brought forward from the question
Now deal with that cash in transit matter in so far as it affects Ausra
Go and have a glass of water
Better? Ok, now pretend that you are Danute and forget that fact that just three minutes ago you were Ausra.
Open up the same three accounts in Danute’s accounting records and put in the values straight from the question.
Now look at the point concerning cash in transit and make the necessary adjustment in Danute’s records in so far as it affects Danute.
Ok, that has dealt with the cash in transit.
Now check the question to see the value of the intra-group debt and pay great attention to the detail as to which records shows the debt of $11,500
Do the cancellation!
Is that any clearer?
You can reassume your own identity now if you like (or you can stay as Danute if you really want!)
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