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Could you please help with following:
P has 4000 receivables relating to S.S raises cheque for 2500 which is not paid until next year.
There is no problem with regard to cash and receivables to recognize cash receit, but i have a doubt why they show for cancelling payables and receivebles 1500?As far as i understand it should be total amount of 4000, shouldn’t it?
Hi,
If P has a receivable balance of 4,000 then S will have a corresponding 4,000 payable balance. On payment of the 2,500 by S the payable balance will reduce to 1,500 in S’s books.
We record the cash in transit by reducing the 4,000 receivable in P’s books by 2,500 and therefore leaving a receivable balance of 1,500.
We then need to eliminate the equal intra-group balance of 1,500 by reducing both the receivable and payable by 1,500.
Hope that clears it up for you.
Thanks
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