Here are Intercompany Payables and Receivable Journal Entry. Intercompany payables and receivables arise from transactions between entities within the same corporate group. Properly recording these transactions ensures accurate financial reporting for each entity and the corporate group as a whole.
Example Scenario
Let’s assume Company A provides a service worth ₹50,000 to Company B on 01-08-2024. Company A will record this as an intercompany receivable, and Company B will record it as an intercompany payable.
Journal Entry in Company A’s Books (Service Provider)
Company A needs to record the receivable for the service provided.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 01-08-2024 | Intercompany Receivable | 50,000 | Service provided to Company B | |
| 01-08-2024 | To Service Revenue | 50,000 | Recording intercompany service revenue |
Explanation:
- Intercompany Receivable (Debit): This increases the asset account, reflecting the amount owed by Company B.
- To Service Revenue (Credit): This increases the revenue account, recording the service revenue.
Journal Entry in Company B’s Books (Service Receiver)
Company B needs to record the payable for the service received.
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 01-08-2024 | Service Expense | 50,000 | Service received from Company A | |
| 01-08-2024 | To Intercompany Payable | 50,000 | Amount owed to Company A |
Explanation:
- Service Expense (Debit): This increases the expense account, reflecting the cost of the service received.
- To Intercompany Payable (Credit): This increases the liability account, indicating the amount owed to Company A.
Settlement of Intercompany Payable and Receivable
When Company B pays Company A, the following entries are made to clear the intercompany receivable and payable.
Journal Entry in Company A’s Books (Receiving Payment)
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 10-08-2024 | Cash | 50,000 | Payment received from Company B | |
| 10-08-2024 | To Intercompany Receivable | 50,000 | Clearing intercompany receivable |
Explanation:
- Cash (Debit): This increases the cash account, reflecting the receipt of payment.
- To Intercompany Receivable (Credit): This decreases the receivable account, clearing the amount owed by Company B.
Journal Entry in Company B’s Books (Making Payment)
| Date | Account Title | Debit (INR) | Credit (INR) | Description |
|---|---|---|---|---|
| 10-08-2024 | Intercompany Payable | 50,000 | Clearing intercompany payable | |
| 10-08-2024 | To Cash | 50,000 | Payment made to Company A |
Explanation:
- Intercompany Payable (Debit): This decreases the liability account, clearing the amount owed to Company A.
- To Cash (Credit): This decreases the cash account, reflecting the outflow of funds for payment.
Conclusion
Recording intercompany payables and receivables accurately ensures that each entity’s financial statements are correct and that intercompany transactions are properly accounted for during consolidation. This practice helps in maintaining transparency and compliance with accounting standards.