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Dear Mr Little i need your help on this .
Sophistic’s trade receivables at 30.09.2008 include $600000 due from parent company pedantic which did not agree with pedantic’s corresponding trade payable. This was due to cash in transit of $200000 from pedantic to sophistic,. Both companies have positive bank balances. Whats the double entry and what will be affected in the CSFP for the year ended 30.09.2008.
In Sophistic’s records (so, in the Sophistic column on your question paper) accelerate the receipt of $200,000 cash from Pedantic. The double entry SHOWN ON YOUR QUESTION PAPER is to increase cash and decrease receivables.
Now the current accounts agree so the final adjustment is to cancel the intra-group balances. Again, on your question paper, reduce combined receivables by $400,000 and reduce combined payables by $400,000
The net effect (although I would always do it on a step-by-step approach) is to reduce receivables by $600,000, increase cash by $200,000 and reduce payables $400,000
OK?
I thought I had done! In S dr cash cr receivables 200k
And then dr payables and cr receivables total 400k
thank you very much sir.
I got another one below, sorry for bothering you too much.
During the year Dick sold goods to Tom to the value of $8m at a mark-up of 25%
on cost. All of the goods sold to Tom were still in inventory at the year end. There
was an outstanding balance between the two companies at the end of the year of
$3m as a result of this transaction.just need the double entry and not the PUP.
Thaking you in anticipation.
Hi, no worries about “bothering” me – one of the purposes behind the idea of the website is that we are willing (and hopefully able) to answer your questions.
On the sale of the goods, in Dick’s records, the sale will be recorded as:
Dr receivables (Tom) 8m and cr sales / revenue 8m
At the same time, in Tom’s records, he will record dr Purchases 8m and cr payables (Dick) 8m
There is an outstanding balance arising from this transaction of 3m. That means that Tom must have paid 5m to Dick. the double entry for that payment will be, in Tom’s records, dr payables (Dick) 5m and cr cash 5m
At the same time in Dick’s records, he will record the receipt as dr cash 5m and cr receivables (Tom) 5m
You say you don’t want the pup! Well, I’m going to tell you anyway (others may want it!) None of these goods has been sold by Tom as at the end of the year so there is a requirement of a full pup. The calculated figure is 25/125 x 8m = 1.6m pup
The consolidation adjustment in Dick’s retained earnings figure as at the year end is therefore dr retained earnings 1.6m and cr consolidated inventory 1.6m
All clear?
Yes am clear sir, is it the same if we say
Dr Trade payables of Tom $3
Cr Receivables of dick $3 ?I’m not sure how double entry works over a distance of (potentially) many thousands of kilometers!
NO! It is NOT the same. You’re going back into the dark ages before Fra Luca Pacioli in 1492 when he established the principles of double entry.
What you are trying to propose is a debit entry in your books matched by a credit entry in my books.
How can that work?
The cancellation of the reconciled balances is a consolidation adjustment. It is NOT and entry which is reflected in either set of accounting records. It is simply a deduction from the TOTAL receivables and from the TOTAL payables.
OK?
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