Inter company transactions / contributions for capital are best handled via the Transfer of funds through a DUE TO / DUE FROM Account.
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.
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:
Consolidated Balance Sheet after funding - note the cash sent /
received and liability / asset [negative liability] cancel each other
Journal Entries that were created: