Goods in transit

“and how it is a part cancellation?”

I’m not sure what you mean by “… a part cancellation”

When goods have left one group company and, at the time of the inventory count at the end of the year, those goods have not yet been received by the other group company we have to make an adjustment because those goods still belong to the group – but they are not included in the sender’s inventory and nor are they yet in the buyer’s inventory

So that’s what goods in transit are

The adjustment we need to make is in the receiving company’s draft figures as follows:

Increase Inventory (that was physically counted and valued at the year end) by the invoice amount of these goods in transit

Increase Amounts Payable (in the case of an intra-group transaction, the personal account within the Accounts Payable ledger will be the “other” group company ie the sender)

In an exam situation, that one (possibly 2) adjustment will now mean that the intra-group current accounts between the two group companies will now be reconciled and, at that stage, we are able to reduce both the total Accounts Receivable AND the total Accounts Payable figure by this newly reconciled amount

Of course, we’ll need another adjustment too – in the records of the selling group company we’ll need to increase the cost of sales figure and reduce the value of the combined closing inventory by the amount of the pup

Better?