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Dear Sirs/ Ma’ams ,
I don’t really understand what does “cash-in transit” and “invoice-in transit” means for the Receivables.
Can I get an understanding of what it means and the relevant substantive procedure for it also.
Thank you in advance!
See top of page 86 of the AA notes with regard to receivables:
“Disagreements, which may be due to timing differences or errors (the client’s or the customer’s), will need to be reconciled. Timing differences arising at the confirmation date may include:
? Cash-in-transit (ie payments by customers not received by the client);
? Goods-in-transit (ie goods sent and invoiced by the client not received/recorded by the
Such timing differences concern the cut-off assertion for transactions.
If the audit client is the seller – i.e. you are looking at receivables – suppose a customer’s ledger balance is $1,000 at the year end. If in response to an external confirmation request the customer confirms “I owe only $400 at y/e” – they will hopefully give the reason(s) for example:
$300 invoice for goods not received at y/e
$200 payments sent before y/e
$100 over-charged on an invoice
The auditor will then have to confirm each reconciling amount:
$300 – goods despatched to customer before the y/e per GDN (i.e. not included in inventory)
$200 – receipt of cheque/bank transfer after y/e
If these are confirmed, timing differences are not errors and no correction is required to the $1,000 receivable balance
Regarding $100 – if the seller agrees – a credit note should be raised after the y/e which should be accrued at the y/e. The total of the credit note accrual would be offset against total receivables presented in the statement of financial position.
If the seller does not agree – it would be prudent to recognise a different credit – namely an allowance of potentially irrecoverable (“doubtful”) debt.
Payables is just the “opposite” perspective.