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Ray Carnes

--Ray Carnes--
2449
| 5 2 8
Highland, United States
--Ray Carnes--

Business Analyst - Custom Projects

https://www.linkedin.com/in/raycarnes

Ray Carnes
2/16/19, 9:34 PM

 

Inter company transactions / contributions for capital are best handled via the Transfer of funds through a DUE TO / DUE FROM Account. 

Some businesses have two accounts. For a given Company A, the first account - DUE TO B - is a liability account that represents the money Company A owes to Company B.  The second account - DUE FROM B - is an asset account that represents the money Company B owes to Company A.

Some businesses have one account.  Company A would create a liability account DUE TO / DUE FROM B to represent both things.  A positive balance means Company B owes Company A money.  A negative balance means Company B owes Company A money.

My example will use a single account.

1. Setup the Accounts in each Company.  Here, we have two companies - PARENT and SUBSIDIARY.



2. Setup a Journal in each Company. 

The Parent Journal is named "Subsidiary" to indicate the flow of funds to and from the subsidiary:


The Subsidiary Journal is named "Parent" to indicate the flow of funds to and from the Parent:



3. For each funding transaction, transfer funds in both Companies:


In the Parent, fund the Subsidiary:


In the Subsidiary, receive the funds from the Parent:



The partial Parent Balance Sheet after funding:


The partial Subsidiary Balance Sheet after funding:


The Consolidated Balance Sheet after funding - note the cash sent / received and liability / asset [negative liability] cancel each other out:



Journal Entries that were created:


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James White
10/11/17, 8:31 AM

Hi w.  I presume you found a solution but since I have a similar issue and a potential solution, I thought I would add to the thread.

In my situation, I sometimes fund my startup from my own bank accounts - much like your Father/Daughter corporate relationship.  I think that the trick is to realize that FATHER is a lender in the short term and possibly an investor in the long-term.

Basically, if this is a short-term loan, it is simple enough to create a credit-card account with your FATHER corp as the bank.  You can repay your "credit card" at any time and there are no interest questions to answer.  At year end you can close any remaining balance out and transfer the liability to a long-term "Investor Loan" which generates annual interest for the Parent - either pay it out or tack it onto the total owing the Parent.

That is just one idea - it is how I do it.  Maybe it will work for others.

If anyone knows why this is a BAD idea, I would sure like to hear about it.


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Avinash Nk

--Avinash Nk--

2131
| 5 3 9
Calicut, India
--Avinash Nk--

 

Avinash Nk
3/5/17, 11:32 PM

Hai ,

just check it.

Accounting/payments/internal transfer

i think this is the think that you want.

Thank you.

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