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I’m finding it difficult to understand cash or goods in transit. I thought if a parent company trades with its sub we don’t include owing balances from either to the other on the consolidated SOFP. A question I’m doing has in current assets, the parent with a current acc in the subsidiary of 18000 and in the current liabilities the subsidiary with a current account for the parent of 12000. I know it’s goods in transit. But why is it included.
Many thanks
is it goods in transit or cash in transit?
If i sold goods to my subsidiary, i would raise an sales invoice, the invoice would have a date.
I would record the sales invoice at that date……… the subsidiary should record the same invoice, now a supplier invoice at the same date. So parent debtor a/c and subsidiary a/c should agree…… Unless there is missing paperwork, but that could be very quickly dealt with by reconciling the accounts.
If its cash (normally bacs or cheque) it will still have a date (payment date), the parent would treat it as money yet to clear on the bank statement. Debit bank $6000 Credit Debtors $6000, this balances the parent to subsidiary debt. in effect making an allowance for it… it would be odd to own, say 70% of a subsidiary and them to bounce a payment.
Think about the accrual concept of accounting and the transactions between parent & sunsibdiary, if its a sale in one, it must be a purchase in the other & vise versa … same applies for payments/receipts
Hope this helps
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