Recording an intercompany transfer

When two companies are related to each other, funds may be moved back and forth between them without a sale or purchase being made.

To track the balance of transfers between two companies, you must set up a liability named “Due to/from (company name)” in each company’s books.

For example:

John Doe is the principal shareholder for two different companies: ABC Farms Ltd. and XYZ Acres Ltd. 

1. ABC Farms Ltd. transfers $1,000.00 to XYZ Acres Ltd. to pay for tractor repairs. The transaction is recorded in ABC Farms Ltd.’s books as: The transaction is recorded in XYZ Farms Ltd.’s books as:
2. XYZ Acres Ltd. pays for chemical that’s delivered for use by ABC Farms Ltd. The transaction is recorded in ABC Farms Ltd.’s books as: The transaction is recorded in XYZ Acres Ltd.’s books as:
3. XYZ Acres Ltd. owns 50 head of feeder heifers. Ownership of 10 head of cattle is transferred to ABC Farms Ltd. No cash changes hands. The transaction is recorded in ABC Farms Ltd.’s books as: The transaction is recorded in XYZ Acres Ltd.’s books as:

At the end of the year, the balance of the two “Due to/from” accounts in each set of books should be the same. If they’re not, then one set is missing a transaction. When working with intercompany transfers, there’ll always be at least one transaction in each set of books.

Last updated on May 2, 2013 by FCC AgExpert