USA Inter-Company Journal Entries


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Hello,

I'd like to know if my inter-company journal entries for recording an expense paid on behalf of a wholly owned subsidiary is correct. Note, that the sub has it's own set of books. Let's say the parent company is paying rent for their subsidiary company by transferring cash to the subsidiary to pay it. My entries are as follows:

Parent
Dr Intercompany expense
Cr Intercompany Payable

Dr Intercompany payable
Cr Cash

Subsidiary
Dr Intercompany Receivable
Cr Intercompany Revenue

Dr Cash
Cr Intercompany Receivable

Subsidiary makes payment for it's rent
Dr Expense
Cr Cash

Intercompany elimination in consolidation on parent’s books, something like this?
Dr Intercompany rev
Cr Inercompany exp
Eliminate the inter-company entries and are left with the rent expense amount in the consolidated P&L. This seems very basic to me but could not find on the web and haven't looked at inter-company transactions in ages.
 
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Steve-LevelUp

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I deal with intercompany transactions quite frequently, so I think I will be able to answer you. To confirm what happened though, the parent company transferred cash to the subsidiary (for the purpose of paying rent) correct?

So, the parent entry would be as follows.

Dr. Intercompany
Cr. Cash

The Subsidiary entry would be as follows

Dr. Cash
Cr. Intercompany.

Then, the sub pays rent.

Dr. Rent Expense
Cr. Cash.


It's a fairly simple entry if you just follow the cash, which is really the most important part of this.

On related entities, the intercompany balances on both sets of books should be identical. Eg, what one company gives, the other receives, so they should always match.

Upon consolidation, these two balances would net to $0 as one is a debit balance and the other is a credit balance.

I hope that helps to answer your question.

Regards
Steve
 
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So what type of account is the 'Intercompany' account? Is it a liability and receivable?
 
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Thanks, can I ask what if it is more a revenue sharing distribution from the subsidiary to the parent? The parent isn't technically paying bills for the subsidiary. At my new job, I'm seeing intercompany accounts previously set up as retained earnings account but they looks odd.
 
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I have the same question as Santi. Our subsidiary company is winding down and I'd like to transfer most of the cash to the parent company, to later redeploy to a second subsidiary. I'm thinking the entries would be:

Sub 1 books to transfer cash to parent:
DR Owner's equity
CR Cash

Parent receive cash from Sub 1:
DR Cash
CR Income

Parent transfer cash to Sub 2:
DR Investment in Subsidiary (asset)
CR Cash

Sub 2 receive cash from Parent:
DR Cash
CR Owner's equity

Thoughts?
 
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kirby

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In the second entry, the credit should be to Investment in Sub.
 
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You have a lot of type of intercompany transactions and accounts. The most common type of transaction are the cases where one entity, the parent company pays for goods and services whose beneficiary is the subsidiary.
In this case, both entities, parent company, and subsidiary have to set up intercompany payable/receivable accounts: payable for the subsidiary and receivable for the parent company.
  1. When the parent company pays for the goods and services for the subsidiary, the parent company Credits bank and Debits an intercompany Receivable control account.
  2. Simultaneously, the subsidiary Credits and intercompany payable and Debits expense.
The two intercompany accounts, the receivable on the parent company used and the payable on the subsidiary side mirror each other. They carry the same absolute balance in value.
This is just one example, but it pretty much gives you the gist of how intercompany transactions work in general.
 
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Hi,
We have company in US and Canada. One of our customer deposited US check in Canada Bank.
can i know what transaction or journal entry will be best for this situation.
 
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kirby

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You need to provide clear info.
Your customer deposited their check to you or your check to them or somebody else’s check to them or what?
The check was deposited into your acct or customers acct or what?
Et cetera
 

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