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How do i allocate intercompany expenses between two sister companies

George Gacungu's Profile

I am managing two sister companies.At the moment one company bills the other for monthly Administration expenses. For example: One company manages the accounting department of the sister company. The accounting department expenses are then apportioned in the expenses of the two companies and an invoice is raised to the sister company at the end of every month. What is the best way of treating the above entry in the books of the two companies?

Answers

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

I would use Due to/Due From and an expense category, assuming consolidation.

If they are not consolidated, then an invoice from company one to company two, and a payment from two to one.

George Gacungu
Title: Finance Manager
Company: KAPI LIMITED
(Finance Manager, KAPI LIMITED) |

How will the invoice from company one to company two be treated in the books.n Should i take it an income for company A? I had been previously allocating the expenses and charging to an intercompany account but i am not sure for tax implication on this.

Topic Expert
Wayne Spivak
Title: President & CFO
Company: SBAConsulting.com
LinkedIn Profile
(President & CFO, SBAConsulting.com) |

George,

At this point I believe you should be conferring with your Accounting Firm or at the very least, refer back to your college accounting texts.

Rohit Kohli
Title: Finance Director
Company: SKS
(Finance Director, SKS) |

from a consolidation perspective the 2 entries should cross each other out...

Lynne Holloman
Title: Accounting Manager
Company: Woodside Equine Clinic
LinkedIn Profile
(Accounting Manager, Woodside Equine Clinic) |

If you don't have the Quickbooks Enterprise software (it's the only Quickbooks software that can consolidate the multiple companies) it's easier for just invoicing the company and receiving the payment from the company. If you do have a system to consolidate, I would then use the Due from/to abc company as a Current Asset Account and allocate expenses/income that way monthly.

George Gacungu
Title: Finance Manager
Company: KAPI LIMITED
(Finance Manager, KAPI LIMITED) |

How will this invoicing affect the Income statement of the invoicing company

Kevin Roones
Title: Senior Accounting Professional
Company: In-between
(Senior Accounting Professional, In-between) |

As several responders have pointed out, the important thing if you are producing consolidated statements is that everything eliminates in consolidation.

I personally would be handling the intercompany charge as a memo entry, and not be producing invoices. It would be a contra G&A expense on the charging entity's books, with a debit to Due to/from Affiliates, and a G&A expense on the receiving entity's books, with a credit to Due to/from Affiliates. Some sort of detail on how the charge is calculated should be sent to the receiving entity by the charging entity.

It is not a revenue item for the invoicing company, but would reduce their G&A expense.

Roger Singh
Title: Manager Finance
Company: National Training Agency
(Manager Finance, National Training Agency) |

1. Bill the coy:Dr Due to /From Sister Coy. / Cr Income A/c
2. Pymt rec'd : Dr bank A/c / Cr Due to /from Sister coy.
You should also assign someone to monitor and reconcile this acct regularily.

Jim Pearse
Title: CFO
Company: AFS
(CFO, AFS) |

I found that the hardest part is getting the two companies to agree on the amount of the charge. Once the amount is settled, you may want to use journal entries and not invoices. You may also want to stay away from any form of sales classifications as many insurance companies base their invoice/charges on total gross sales revenue of the company they are insuring. They base their numbers off of invoice registers.

Dina Lucas
Title: Controller
Company: Aurora Technologies, Inc.
(Controller, Aurora Technologies, Inc.) |

I handle 5 companies all related through common ownership. The main company provides most of the administrative work for the others. I do a journal entry every month for "management expense". The 4 "lesser" companies pay a management fee based on an agreed % of sales to the main company. It is management income on the IS of the main company and management expense on the other 4 companies. It runs through the due to/from accounts on all books. At the end of each month each company issues checks to the others to zero out the due to/from accounts.

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