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Accounting For Mistakes, Errors & Accidental Charges

accounting for mistakesHi all, I work at a small startup that is a joint venture between multiple companies. The management of one company acts as management of my company, and on occasion will accidentally charge expenses to the parent company. Previously we have treated this as a short-term loan, or an expense that is invoiced to the parent company. Any recommendations on which is best? Is it effected by portion of ownership?

Answers

Harold D. Tamayo
Title: Vice President of Finance
Company: MHA Inc., a Roper Technologies Company
LinkedIn Profile
(Vice President of Finance, MHA Inc., a Roper Technologies Company) |

Are you asking about the allocation of the cost or an from an accounting perspective how to treat it? Since it is a start up, from a managerial perspective I don't see the value in charging costs to it. However, without getting to deep, you would raise a payable in the JV and the parent company a receivable. Those costs could be treated as intercompany loans but why?

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

Read the JV agreement. It should mention something about cost sharing, allocation, or treatment. If silent, your management company should reconfirm with all partners or the parent company at the very least. Recommendations or what we think will be moot if the JV agreement says otherwise.

Do not let it pile up and remain unresolved as (1) it will affect your cashflow and (2) it will be a mess and difficult to untangle down the road.

Topic Expert
Linda Wright
Title: Consultant
Company: Wright Consulting
(Consultant, Wright Consulting) |

Totally agree with Emerson.

Topic Expert
Scott MacDonald
Title: President/Owner
Company: AlphaMac Resources, Inc.
(President/Owner, AlphaMac Resources, Inc.) |

If the JV agreement is silent, and management is agnostic, I would recommend treating it as an inter-company rec/pay. An invoice typically involves crediting some type of revenue account, which would be inappropriate from a GAAP standpoint.

Harold D. Tamayo
Title: Vice President of Finance
Company: MHA Inc., a Roper Technologies Company
LinkedIn Profile
(Vice President of Finance, MHA Inc., a Roper Technologies Company) |

I agree Scott. The JV agreement would dictate how, what, and when. rec/pay is probably the best way to treat it.

EMERSON GALFO
Title: CFO
Company: C-Suite Services
LinkedIn Profile
(CFO, C-Suite Services) |

This got me laughing out loud....."....will ACCIDENTALLY charge expenses to the parent company."

Whether intended or unintended....that was funny!

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