Accounting Question..

[Paccountant]

My company has 2 sets of books.

Company 1 is where we receive sales. Company 2 is where we have our expenses: wages, utilities, etc. When company 1 transfers money to company 2, is that considered notes payable to company 1? Or is it still considered as Sales?

Ex.

Company 1 receives 100k. Company 1 transfers 50k to company 2.

Company 2 debits cash and credits sales? or debits cash and credits notes payable to company 1?

And what does company 1 do? Credit cash.. and debits notes receivables?


Both company's are the same company. Company 1 will never receive the money back and Company 2 will not pay back company 1...

Any feedback is greatly appreciated. Thanks

 

[Marshall]

I'm not sure why you are treating two parts of the same company as different company. If it's all one company, then it seems like you be treating it as an intercompany account and not treat it as sales by company 2.

 

[ArcSine]

Company 1 will never receive the money back and Company 2 will not pay back company 1...

That immediately rules out recording the transactions using intra-company payables and receivables.

Past that matter, though, is there a reason for wanting to record the cash transfers as anything other than simply a debit to one bank account and a credit to another? Sometimes, for example, companies like for their departments to have "internal" P&Ls showing the net profit or loss of each division, branch, or department. In such cases, a payment from one department to another might be treated as revenue (by the receiving dept) and as expense (by the paying dept).

But these are typically done this way only in situations where one department actually "sells" a product, or provides some service, to another department. Absent that, a department-to-department cash transfer---for no other reason than to replenish one bank account from the surplus funds of another---is just recorded as a debit to the former account and a credit to the latter.

 

[Paccountant]

I'm not sure why you are treating two parts of the same company as different company. If it's all one company, then it seems like you be treating it as an intercompany account and not treat it as sales by company 2.

Thank you for your response.

This is one company, but the company are on two different sets of books. Usually within a company, if you have 5 different bank accounts and transfer money to one another then you use the intercompany account. But since 2 companies are on 2 different sets of books, i dont know what to use.

 

[Paccountant]

That immediately rules out recording the transactions using intra-company payables and receivables.

Past that matter, though, is there a reason for wanting to record the cash transfers as anything other than simply a debit to one bank account and a credit to another? Sometimes, for example, companies like for their departments to have "internal" P&Ls showing the net profit or loss of each division, branch, or department. In such cases, a payment from one department to another might be treated as revenue (by the receiving dept) and as expense (by the paying dept).

But these are typically done this way only in situations where one department actually "sells" a product, or provides some service, to another department. Absent that, a department-to-department cash transfer---for no other reason than to replenish one bank account from the surplus funds of another---is just recorded as a debit to the former account and a credit to the latter.

Thanks for your reponse as well.

Company 1 receives the revenue and disburses whatever amount to Company 2.
(these are on two separate sets of books)

For company 1, i would credit the cash and i dont know what to debit, an expense? Maybe Sales disbursements? Something within that area.

Company 2, i would debit cash and credit sales?

 

[Triest123]

Obviously, Company 1 is to manage the receivables of Company 2 so that the cashflow
can be fully controlled by Company 1 (i.e. restrict the cash used by Company 2)

It is not necessary to maintain 2 books as they are,in fact, the same company.
You can simply prepare the inhouse records for the receivables and the fund transfer
between the company 1 & 2.

 

[cuongvnd]

Does each company prepare finacial report? If not, does not double entry for that transaction. there are 2 books in order to manage earier.

 

[Cheaper Accountant]

I never come across anything quite like this before and don't envy your position. I think the structure is confusing an completely unnecessary. I would suggest changing this altogether and use only one company. What you have in place is not normal practice.

 

[bklynboy]

My company has 2 sets of books.

Company 1 is where we receive sales. Company 2 is where we have our expenses: wages, utilities, etc. When company 1 transfers money to company 2, is that considered notes payable to company 1? Or is it still considered as Sales?

Ex.

Company 1 receives 100k. Company 1 transfers 50k to company 2.

Company 2 debits cash and credits sales? or debits cash and credits notes payable to company 1?

And what does company 1 do? Credit cash.. and debits notes receivables?


Both company's are the same company. Company 1 will never receive the money back and Company 2 will not pay back company 1...

Any feedback is greatly appreciated. Thanks

I have a similar situation at my company where we have transfers between lines (not companies as I agree with others this is strange). Since in your example, both "companies" are in the same legal entity I would do the following:

Record Initial cash from sales: Co1 Debit Cash 100K and credit Sales 100K. I am assuming "company 1" is providing the product/service in your example.

Record transfer to Co2: Co1 Debit Retained Earnings 50K and credit cash 50K. Co2 Debit Cash 50K and credit RE 50K. I am using RE as you are in effect transferring equity to another company (cant use capital as there is no capital involved). I would not hit sales either since company 2 is not selling anything. Note that for the total legal entity entity nothing has happened as net cash is 0 as is RE.

This method is how we do it but could be other ways. Key is since this is internal bookkeeping it doesnt really matter what you journalize as long as its a mirror image between companies. Net entry is really just the first one. Let me know if I do not have the facts correct.

 

[Paccountant]

Thanks everyone for their feed backs. All of them are greatly appreciated.

Below is a summary of the situation and the resolution i have come up with.

Ex.
Company 1 inherits 100k (all of the cash that is flowing in, which is sales)
So every time cash flows in, Debit Cash 100k and Credit Sales 100k.

Then Company 1 transfers some of the money to Company 2.
Credit Cash 60k and Debited 60k Sales/Funds Transfer (as an expense).
Company 2 Debits Cash and Credits Sales.

So not the entire amount is transferred every time there's incoming cash.
The CEO takes the money and debits his own bank account for his personal reasons, which really irritates me and transfers money, withdraws money without letting me know where the money is going to.

Sometimes it goes from Company 1 to Company 2. Then Company 3 ( which is his own personal bank account) transfers to Company 2. Or Company 1 to Company 3.

Company 2, which is the company we operate under has 5 bank accounts. Like come on. 1 for wiring money from Company 1. 1 for general purposes. 1 for payroll. 1 for petty cash. And 1 for nothing.

Keep 1 bank account under one name. It's a mess and leaves me a headache.

An Accounting Nightmare!