Here is a given Intercompany Accounting Entries with example and details wise. Intercompany transactions occur between different entities within the same parent company. These transactions can include the sale of goods, transfer of funds, provision of services, or allocation of expenses. Proper accounting for intercompany transactions is crucial to ensure the consolidated financial statements of the parent company are accurate and eliminate any double-counting.
Key Concepts
- Intercompany Transactions: Transactions between different entities within the same corporate group.
- Eliminations: Adjustments made during consolidation to remove the effects of intercompany transactions.
Common Types of Intercompany Transactions
- Intercompany Sales and Purchases
- Intercompany Loans
- Intercompany Services
- Intercompany Allocations
Journal Entries for Intercompany Transactions
1. Intercompany Sales and Purchases
Example: Entity A sells goods worth ₹100,000 to Entity B on 01-08-2023.
Journal Entry in Entity A (Seller):
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 01-08-2023 | Accounts Receivable | 100,000 | Record intercompany sales | |
| 01-08-2023 | To Sales Revenue | 100,000 | Revenue from intercompany sales |
Journal Entry in Entity B (Buyer):
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 01-08-2023 | Inventory | 100,000 | Record intercompany purchase | |
| 01-08-2023 | To Accounts Payable | 100,000 | Payable to Entity A |
2. Intercompany Loans
Example: Entity A lends ₹200,000 to Entity B on 15-08-2023.
Journal Entry in Entity A (Lender):
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 15-08-2023 | Intercompany Loan Receivable | 200,000 | Record loan to Entity B | |
| 15-08-2023 | To Cash/Bank | 200,000 | Cash given to Entity B |
Journal Entry in Entity B (Borrower):
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 15-08-2023 | Cash/Bank | 200,000 | Record loan received from Entity A | |
| 15-08-2023 | To Intercompany Loan Payable | 200,000 | Loan payable to Entity A |
3. Intercompany Services
Example: Entity A provides management services worth ₹50,000 to Entity B on 20-08-2023.
Journal Entry in Entity A (Service Provider):
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 20-08-2023 | Intercompany Receivable | 50,000 | Record services provided | |
| 20-08-2023 | To Service Revenue | 50,000 | Revenue from intercompany services |
Journal Entry in Entity B (Service Receiver):
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 20-08-2023 | Service Expense | 50,000 | Record services received | |
| 20-08-2023 | To Intercompany Payable | 50,000 | Payable to Entity A for services |
4. Intercompany Allocations
Example: Entity A allocates administrative expenses of ₹30,000 to Entity B on 25-08-2023.
Journal Entry in Entity A (Allocating Entity):
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 25-08-2023 | Intercompany Receivable | 30,000 | Record expense allocation | |
| 25-08-2023 | To Administrative Expense | 30,000 | Allocation of administrative expenses |
Journal Entry in Entity B (Receiving Entity):
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 25-08-2023 | Administrative Expense | 30,000 | Record received expense allocation | |
| 25-08-2023 | To Intercompany Payable | 30,000 | Payable to Entity A for allocation |
Conclusion
Intercompany accounting entries are essential for maintaining accurate and transparent financial records within a corporate group. Properly recording these transactions ensures that consolidated financial statements reflect the true financial position of the parent company, free from the effects of internal transactions.