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layout: ../../layouts/Post.astro
title: 'Intercompany Transactions Guide: Recording Loans & Transfers'
description: 'Correctly record loans and transfers between related companies (intercompany accounts) using the Due To/Due From method.'
pubDate: '2025-10-25'
modifiedDate: '2025-10-25'
author: 'Books Automator Team'
tags: ['Intercompany', 'Consolidation', 'Journal Entry', 'Related Party', 'Advanced']
---
import { Check, X, AlertTriangle } from 'lucide-astro';
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<p class="font-semibold mb-2">Before You Start</p>
<p class="text-(--muted)">This guide assumes you operate multiple legal entities and require consolidated financial reporting. Familiarity with basic accounting principles is essential.</p>
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## Overview
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<div class="text-2xl font-bold text-(--accent) mb-1">35 min</div>
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<div class="text-2xl font-bold text-(--accent) mb-1">Advanced</div>
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## What You'll Learn
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<span>How to set up 'Due To/Due From' accounts</span>
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<span>Recording intercompany loans and transfers</span>
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<span>Strategies for reconciling intercompany balances</span>
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<span>Methods for eliminating intercompany transactions for consolidation</span>
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## 1. Preparation Steps
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<p class="text-(--muted) mb-4">Before recording any transactions, ensure you have the correct accounts established for each entity:</p>
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<h4 class="font-semibold mb-2">Required Accounts</h4>
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<li>Due From [Related Entity Name] (Asset)</li>
<li>Due To [Related Entity Name] (Liability)</li>
<li>Intercompany Expense (Expense)</li>
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<h4 class="font-semibold mb-2">Optional (but recommended)</h4>
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<li>Intercompany Revenue (Income)</li>
<li>Investment in Subsidiary (Equity/Asset, for parent company)</li>
<li>Intercompany Interest Income/Expense</li>
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## 2. Understanding Intercompany Balances
Intercompany transactions primarily revolve around two types of balances.
### Type A: Intercompany Loans
These are formal agreements for one entity to lend money to another.
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<li>Clear principal & interest terms.</li>
<li>Formal repayment schedules.</li>
<li>Easily trackable with documentation.</li>
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<li>Requires legal documentation.</li>
<li>Potential tax implications.</li>
<li>Can complicate consolidated debt.</li>
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### Type B: Intercompany Transfers (Operational)
These are typically short-term or operational transactions, like sharing expenses.
> **Expert Tip:** Always ensure both entities record the transaction symmetrically (e.g., one's 'Due From' is the other's 'Due To' with the exact same amount). This is crucial for reconciliation and elimination.
## 3. Recording Journal Entries
The core of intercompany accounting is the journal entry. Here's an example for a loan from Parent Co. to Sub Co.
// On Parent Company Books (Lender) Debit: Due From Sub Co. (Asset) $10,000 Credit: Cash (Asset) $10,000 (To record loan to Sub Co.)
// On Subsidiary Company Books (Borrower) Debit: Cash (Asset) $10,000 Credit: Due To Parent Co. (Liability) $10,000 (To record loan from Parent Co.)
Here's an example for a shared service fee:
// On Parent Company Books (Providing Service) Debit: Due From Sub Co. (Asset) $500 Credit: Intercompany Service Revenue (Income) $500 (To record service fee charged to Sub Co.)
// On Subsidiary Company Books (Receiving Service) Debit: Intercompany Service Expense (Expense) $500 Credit: Due To Parent Co. (Liability) $500 (To record service fee from Parent Co.)
## 4. Reconciliation Best Practices
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<h4 class="font-semibold mb-1">Establish Clear Policies</h4>
<p class="text-(--muted)">Define terms, repayment schedules, and expense allocation for all intercompany transactions across entities.</p>
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<h4 class="font-semibold mb-1">Regular Reconciliations</h4>
<p class="text-(--muted)">Perform monthly or quarterly reconciliations of all 'Due To/Due From' accounts between related entities to catch discrepancies early.</p>
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<h4 class="font-semibold mb-1">Automate Where Possible</h4>
<p class="text-(--muted)">Utilize accounting software features or specific intercompany modules to track and match transactions, reducing manual effort and errors.</p>
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<p class="font-semibold mb-2">Common Error: Mismatched Balances</p>
<p class="text-(--muted)">A 'Due From' balance in one entity must always perfectly match a 'Due To' balance in the related entity. If they don't, it indicates an error in recording that will prevent accurate consolidation.</p>
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## 5. Elimination for Consolidation
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<h4 class="font-semibold mb-2">Elimination Checklist</h4>
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<span>Identify all intercompany assets and liabilities</span>
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<span>Reverse intercompany revenue and expenses</span>
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<span>Eliminate intercompany equity transactions</span>
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<span>Ensure zero net impact on consolidated financials</span>
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## Need Help?
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<h3 class="text-xl font-semibold mb-2 text-white!">Expert Guidance for Complex Structures</h3>
<p class="mb-4 text-white/90">Consolidating multiple entities can be challenging. Our advanced accounting team specializes in streamlining complex intercompany workflows.</p>
<a href="/contact" class="inline-block px-6 py-2 rounded-full bg-white text-black! font-medium hover:bg-opacity-90 transition">Schedule a Consultation</a>
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