I have been hired to clean up and manage the books of a client who has two businesses. Company A is an LLC and is owned outright by my client. Company A also owns a 50% stake in Company B.
The contractors for Company B uses a credit card issued by Company A for business expenses. How should Company B reimburse Company A? Should Company A invoice Company B for the amounts owed?
That would work. Or you can just do intercompany accounts which eventually would probably have to be paid out, too, in some way or another. Since it is credit cards, it would probably be easier to do intercompany accounts because those can be entered at the time the bill is entered in company A.
Thanks for your input, Bruce. At this point, I am going to go with the Intercompany A/P and A/R accounts when it comes to reimbursements. One other question I have is in regards intercompany loans.
My new boss has been transferring cash from Company A to Company B to cover expenses with the intention that the parent company will be paid back. Since this will be a loan for Company B, would Company A have to charge the subsidiary interest? I read that with intercompany loans, the borrower would have to pay interest?
Also, given this scenario, would creating accounts for an intercompany loan (Current Asset / Current Liability) be the right way to go?
I'm not Bruce but in my experience yes on both the accounts and interest. Technically a loan agreement should be in writing with (reasonable) interest and terms.
I prefer specific intercompany accounts so at a glance it's all clear. If say the Asset account is used in the future as a payable/liability, or for multiple companies and transactions simply looking at the balance can be confusing especially to business owners.
Thanks, Oldcargirl. Would the process of returning the money sent to the subsidiary be less complicated if the subsidiary shifted its profits to the parent company?
Someone above my pay grade may have to answer that, although I don't see how that is less complicated as you still have to book it.
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