Understanding Intercompany Transactions
- Brian R. Schobel, CPA
- 15 minutes ago
- 2 min read
When your business grows into multiple entities—whether it’s a parent company with a subsidiary, or separate branches handling different services—money and resources often move between them. These movements are called intercompany transactions, and understanding them helps you stay organized, compliant, and profitable.
Why Intercompany Transactions Matter
Even if you're the owner of all entities involved, each company must keep clean, accurate books. Clear records prevent tax headaches and give you a true picture of each unit’s performance.
Common Types of Intercompany Transactions
Shared expenses: One company pays for software or rent, and another reimburses its share.
Sales of goods or services: One entity sells products or labor to another at an agreed price.
Loans or cash transfers: When one company needs funds and another provides them.
Tips to Manage Them Smoothly
1. Document Everything- Use simple invoices, memos, or transfer agreements. Don’t rely on memory—paper trails matter.
2. Set Clear Pricing- Whether it’s cost-sharing or internal sales, decide on a consistent method for pricing. Keep notes on how you arrived at those numbers.
3. Keep the Books Separate- Each company should have its own bank account and financial records. Mixing funds is where most problems start.
4. Use Accounting Software Wisely- Most cloud tools allow tagging or linking companies. This keeps transactions aligned on both sides—one as an expense, the other as income or reimbursement.
5. Reconcile Regularly- Check that both entities recorded the transaction the same way. Small mismatches grow into big errors over time.
Final Thoughts
Intercompany transactions don’t have to be overwhelming. With clear documentation and consistent processes, you can keep your multi-entity setup running smoothly. And when in doubt, ask your accountant—a quick check-in can save you time, money, and future stress.
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