Odoo is the world's easiest all-in-one management software.
It includes hundreds of business apps:
How do I loan a subsidiary money from the parent, showing the liability on the subsidiary side, the asset on the parent side, a bank withdrawal from the parent and a deposit to the child?
When I run consolidated financial reports, the "owed to" and "owed from" amounts should be eliminated, since they cancel each other out.
LAST UPDATED: October 2022 (Odoo 16)
Inter company transactions are best handled via the Transfer of funds through a DUE TO / DUE FROM Account.
We recommend this approach because:
it closely matches the steps in the real world.
it follows accounting best practices many Book-keepers, Accountants and Controllers will be familiar with.
a transfer can be printed as a check, in case funds need to be moved this way
no AP or AR is involved.
no special account types are needed.
a reconcilable Journal Entry for each Bank Account involved is created to match the bank statement withdrawal / deposit activity.
bank statements (no lines needed, just starting balances) can be created to compare and record the end of period balance in the DT/DF account(s).
bank statements (lines manually added) can be used to reconcile each DT/DF account.
you can show the DT/DF account balance(s) anywhere on the Balance sheet.
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 Journal in Parent is named "Subsidiary" to indicate the flow of funds to and from the subsidiary:
The Journal in Subsidiary is named "Parent" to indicate the flow of funds to and from the Parent:
(set the Bank and Outstanding Accounts to 112500 similar to the prior Journal)
3. For each funding transaction, transfer funds in both Companies:
In the Parent, fund the Subsidiary (transfer from the Bank to the Subsidiary):
In the Subsidiary, receive the funds from the Parent (transfer from the Parent to the Bank):
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:
1 = in the Parent Company, fund the Subsidiary from Bank
2 = in the Subsidiary Company, fund the Bank from the DT/DF Account
B = cleared and matched during Bank Reconcilation
T = cleared and matched during Internal Transfer Creation
@Ray found your Odoo 16 comment on this topic. How were you able to set a bank account non-current liabilities? This only allows bank accounts to be selected.
Create the bank account normally as type "Bank and Cash" (so you can select it), then later change the type (it will remain selected in the Journal).
Only 2 journals are being created in my case. The BNK1 journal items are not created. In my case, I am transferring deposits to the parent bank that have not be reconciled so they can be reconciled in the child company with the child company merchant services account. If the BNK1 journal items were created, I assume the Bank Suspense item would reconcile with the Outstanding Payments side of the BNK1 journal.
Depending on the country the parent and subsidiary is you most likely would need to indeed go down the loan route as Anas Javaid suggested. Just an internal transfer would not be compliant as we are talking about different business entities. I know it doesn't answer the question but I don't think the internal transfer is the answer either.
Thanks this was helpful!
1. Use the live chat to ask your questions.
2. The operator answers within a few minutes.
Hi, I have a similar question, whats the practice for treating an expense paid by parent company on behalf of the subsidiary company?
I'm currently recording this is as:
Parent
Dr. Loan to Subsidiary
Cr. Bank
Subsidiary:
Dr. Payable/Expense
Cr. Loan from Parent
the subsidiary is in a different country so its accounts are filled independently there. Because the above does not create any directly traceable funds transfer between the entities is this method valid?