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Hi,
Just starting with the subject and in this example I dont understand how the inter-company accounts and cash in transit is recorded in the CSFP. It says:
“Plant’s accounts show $6,000 owing to Shrub, Shrub’s accounts show $8,000 owed by Plant. The difference is explained as cash in transit.
The $2,000 cash in transit should be adjusted for in Shrub’s accounts prior to consolidation, assuming that the cash has been received and therefore increasing Shrub’s cash balance by $2,000 to $7,000, and decreasing Shrub’s receivables balance by $2,000 to $8,000.
The outstanding intercompany balance requiring cancelling is therefore $6,000.”Extract from the CSFP:
Current assets:
Trade receivables (20 + 10 -2 (CIT) – 6(inter-co))
Cash (10 + 5 + 2 (CIT))I dont understand why is substracting 6 (inter-co) in trade receivables. Could anyone help?
Many Thanks,
AluaHi, yes. But first I believe that you have miss-typed the question where you have written “decreasing Shrub’s receivables balance by $2,000 to $8,000” – surely you mean “decreased ….. by $2,000 to $6,000”
Ok, that now means that in Shrub’s receivables there is $6,000 receivable from Plant and in Plant’s payables there is $6,000 payable to Shrub. On consolidation, we treat all the companies within the Group as a single entity. That being so, if we did,’t cancel $6,000 from both receivables AND payables (not shown in your posted question), then we would be showing $6,000 owing to / receivable from ourselves. And that’s why we cancel!
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