Please Make Correction to this Concept

[Zikria Yamin]

if a company sells goods to another on credit, this would appear in the Trade Account Receivables of Selling company and Trade Account Payables of Purchasing company. But if Purchasing company make payment by cheque of some portion of paayables and used to reduce the its payables by the amount of that cheque but this cheque did not reached at the Office of addressee and the date of Consolidation for the Statement of Financial Position came.

The intercompany trasaction is to be eliminated but the issue of Cash in transit arises. <font color="green">this cash in transit it to be added into the Bank account of Paying company, which can be either Parent or Subsidiary.</font id="green">

Second Concept,

If one company grants loan to other one but the borrowing company has paid some part of loan at the date of Consolidation but this is not yet received by the Lender. <font color="blue">so on consolidation the cash in Transit would be added into the bank account of Lender.</font id="blue">

[Zikria Yamin]

Dear seniors Plz Make Correction. PLZ PLZ

[Muhammad Amir]

Concept # 1-

Is correct no need to make further corrections.

For example a company "ABC" is a parent company and "XYZ" is its subsidiary, ABC's Accounts Receivables showing $2,000 receivable from Subsidiary and XYZ's accounts are showing $1,500 Payable to Parent, further inspections revealed that subsidiary made a payment of $500 to parent and it has already reduced its accounts payables by $500 but the payment is still in transit.

The underlying conept is that it will reached to parent and the parent will then make the entry.

DRCASH=====X
CRReceivable==X

so, at the time of prepration of Consolidated Financial Statements the above adjusting entry need to be recorded and the remaining inter company balances need to be knocked of i.e. $1,500 need to be deducted from Consolidated Accounts Payables and Receivables

and if there are other outstanding amounts owed by subsidiary to parent the these inter-company balances should be knocked off.

Concept # 2-

Is same and it is also correct.

Regards,

Muhammad Amir

[kamranACA]

Dear,

This is a matter of reconcilation. If the issuer of cheque will add it back, the account would be reconciled and inter company balance could be eliminated. If the issuer does not add it back; rather the recepient makes this entry in its books, again the balances would be agreed and could be elminated in consolidation.

The purpose is to reconcile and agree the balances.

However, practically in very big concerns and their consolidations, consolidation is not materially affected even if such adjustments are not reconciled and agreed becoz every entry has double effects and overall presentation will not be misleading.

In material transactions, such adjustments should be and are properly digged.

This applies to both queries.


Regards,


KAMRAN.

[Zikria Yamin]

Thanks to Dear Sir Kamran and Amir Bhai. Thanks alot.