I am managing two sister companies.At the moment one company bills the other for monthly Administration expenses. For example: One company manages the
How do i allocate intercompany expenses between two sister companies
Answers
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.
2
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
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.
from a consolidation perspective the 2 entries should cross each other out...
If you don't have the
1
How will this invoicing affect the Income statement of the invoicing company
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.
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.
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.
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 "
I want to explain with example below:
Invoice is raised to your company in name of your parent company then first you have to book invoice against your parent company after that when you are going to make payment then pay directly to concerned company against invoice booked to keep both books clean and clear as per tax prerequisite.
1. Parent company dr
To XYZ co(from where invoice is received)
2. XYZ co dr
To Bank or Cash
Then it is clear that payment is receivable from your parent co. You are paying on behalf of that.
Hope its clear to you or if not ok with this please share your comments for further understanding.
Thanks
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