USA Due to/from accounts in quickbooks

[Renee]

I am trying to reconcile due to/from accounts in quickbooks for a company. the owner has 6 LLC's that he transfers money to/from. It is a huge mess!! The transfers are made basically to cover payroll out of each company. I guess you could say he is robbing peter to pay paul type of scenario.
My question is how do I zero the accounts?
Also, is this the correct accounts he should be using to track this? Shouldn't he just invoice the other company and avoid using the due to from accounts?
Please Help!!

 

[Counterofbeans]

It doesn't sound like these entities are performing any services for each other, so my initial inclination would be to NOT recommend invoicing each other.

The use of, "due to/from" accounts seems appropriate here.

Insofar as reconciling everything, that just sounds like a situation where you need to roll your sleeves up and follow the $$---that will tell you everything, including how to record this in your G/L (or due to/from) accounts.

The first place I'd start was the last time those accounts all reconciled and move forward from there with cash flows.

 

[Renee]

Thanks for the feedback.. The problem is they were never reconciled since 2012. I will have to go back and follow every transaction.

Should the accounts zero out at the end?

 

[Samir]

I run across this exact same scenario except for over a dozen companies. It is a huge mess.

And since for tax purposes a company can't 'loan' money to another interest-free as that is treated as a gift, I simply use the owners capital/drawing account to pass the money through to the various businesses, especially since the amounts may vary from the actual expense the transfer is covering. Because technically the owner is drawing money out of one company to then inject into another.

As far as zeroing out, if you have enough records and can go back far enough, you might be able to get everything tracked, but I highly, highly doubt it will zero out. Mistakes are made, and there's probably something still outstanding at some point. Hence why I use the capital/drawing accounts. Then zeroing out doesn't matter anymore, and it's still an accurate account of what happened.

 

[Renee]

Samir... Thanks for the information. The llc's are single member and I assume he is filing an 1120 because he never made the election to be an s corp.

He transfers money to cover payroll or to refund one company that may have covered an expense that belonged to another. So correct me if I am wrong but what I was going to do is track the transactions from one company to another through the bank statements and then do a journal entry to transfer the balance of the due to/from account to the equity account where it belongs.

The due to/from accounts would never zero out because he is not reimbursing once he borrows. He simply moves the money from one company to another when he needs the money.

 

[Samir]

If they're single member llc, then it's a disregarded entity and each will be on his personal on a sched c.

That sounds good. Then the total balance of due to/from will end up in equity where it belongs if you follow it all the way back. Depending on how far back it goes, some of the previous year financials will have corrections on the balance sheet and these will affect the tax returns. So amended returns will need to be filed to get all the equity straight with the IRS.

 

[Renee]

Samir... This company has not filed a tax return since the inception of the business in 2012. That is why he brought me in to correct the books so it can be sent to a CPA for filing.

I do have one additional question... Can he file as an s corp if he elected to do so? I know he would have to file the paperwork to do that but if he did would that effect the way the due to/ from account was handled? Would it still be an equity transaction?

 

[Renee]

Samir... This company has not filed a tax return since the inception of the business in 2012. That is why he brought me in to correct the books so it can be sent to a CPA for filing.

I do have one additional question... Can he file as an s corp if he elected to do so? I know he would have to file the paperwork to do that but if he did would that effect the way the due to/ from account was handled? Would it still be an equity transaction?

 

[Samir]

Samir... This company has not filed a tax return since the inception of the business in 2012. That is why he brought me in to correct the books so it can be sent to a CPA for filing.

I do have one additional question... Can he file as an s corp if he elected to do so? I know he would have to file the paperwork to do that but if he did would that effect the way the due to/ from account was handled? Would it still be an equity transaction?

That makes it a bit easier since you can make everything 'right' one way or another.

An s corp is also a passthrough entity, so I'm guessing you meant c corp? I'm not familiar with the way c corps handle equity, but I'd assume that it's the same.