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How to account for Intercompany shared expenses?

If a company shares expenses with its subsidiary, e.g. rental, electricity and water fee. The Parent company pays all these fees and need to recharge to its subsidiary. Which is the most suitable way to account for these expenses and the principles behind?

1. Parent Company: debit all these expenses in full amount in the first place and then credit those expenses for the amount shared by the subsidiary.
2. Parent Company: debit all these expenses in full amount and consider the amount shared by the subsidiary as income (credit to revenue)

In the subsidary accounts, debit the amount payable to the Parent company in the related account, ie rental, electricity and water fee.

Another question, is it better to sum up those expenses as a "management fee" to charge to the subsidiary?

Answers

Gurusevak Khalsa
Title: CFO
Company: Seva Consulting
(CFO, Seva Consulting) |

Post all expenses in the parent expense account. Then the Parent Co would credit that expense account and debit a interco receivable asset account. The subsidiary would debit their expense account and credit an interco payable liability account. The two interco accounts must always offset each other on the consolidated financials.

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