1.11     Query

Adjustment of TTs-in-transit against the cash credit account

 1.A Government company dealing in import of metals and export of mineral ores and other finished goods, has obtained a cash credit limit from its bankers. This credit limit is allocated by the company to its various Regional Offices located at different places in India. Against this limit, the Regional offices can draw the amount from the concerned branch of the bank in the area and make deposits thereat.

 2.As per the existing practice, balances in various branches of the bank are transferred to the cash credit account at its main branch at Delhi on daily basis. The Regional Offices of the company are sending, on monthly basis, a statement of debit/credit transfers duly certified by the concerned branch of the bank, to the company’s head office. The debit or credit entries on account of such TTs are passed in the Cash Book maintained by the company at its head office only on receipt of debit/credit advice from the bank.

 3. On receipt of monthly TT Statement from the Regional Offices, the Company’s banking section at head office compares the said TT Statement with the Bank Statement to find out TTs in respect of which the bank at Delhi is yet to pass debit/credit entries in the cash credit account of the company. At times, it happens that the amounts are transferred by the bank’s branches to the main branch but the credits/debits are not given in the bank statement on the day subsequent to the date of transfer. In respect of transfers from remote areas, it takes sometimes one week that the transfers are reflected in the bank statement. At the end of the year the transfers not accounted for at the main branch of the bank are routed through suspense account by passing the following entry:

            (i)            Debit/Credit to the concerned Regional Office

            (ii)            Debit/Credit to Suspense Account.

4.The amounts lying in the Suspense Account at the end of the year are adjusted against the balances in the Cash Credit Account and the net balance is disclosed under the head Loan Fund Account in the balance sheet.

5.The company has now been advised that adjustment of the Suspense Account against the Cash Credit Account is not proper and that the outstanding TTs(Cr) should have been shown as liabilities under ‘other liabilities.’ The management however contends that had the transactions been finalised during the course of the year, the bank balance would have been affected and as such these should be adjusted against the Cash Credit Account only.

6. In the context of above facts, the querist has sought the opinion of the Expert Advisory Committee on the following:

(i)         Whether the practice adopted by the company of adjusting TTs not accounted for in the bank statement as they are in transit against the cash credit account through Suspense Account is correct.

(ii)        In case the answer to (i) above is in the negative, what should be the correct practice for reflecting such transactions in the annual accounts.

                                                                      Opinion                                                  1^st April, 1985

The Committee is of the opinion that the TTs in transit represent money transfers, therefore, they should be adjusted in the books of the Corporation at the year end. Such an adjustment can be made, in the opinion of the Committee, against the Cash Credit Account since the inefficiency on the part of the bank of not giving timely credit/debit to the Corporation does not really change the position as far as the Corporation as a whole is concerned. The Committee is however of the view that the nomenclature of the ‘Suspense Account’ should be changed to ‘TTs in Transit Account’ to reflect the true nature of the account. 

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