Are your intercompany transactions reconciled? What might be happening when one company pays another company’s bills?

More often than not, small business owners who own multiple companies are utilizing the same money pool. Whether it’s from the owners’ own pocket or the company that generates the most cash flow, bills are paid without any actual funds transfer from bank account to bank account. This is a common practise and is easily managed, but must be managed well.

Many companies I have consulted with experience an overwhelming number of transactions where invoices are expensed by one company but paid directly from another company. This is common when a new company is being formed. If the intercompany loans are not reconciled precisely each month, you may be at risk of a common error.

On your balance sheet, the “Due to/from” accounts may not reconcile correctly between companies.

Scenario “Due to/from”

Company #1 shows “Due from” Company #2 $1000.00

Company #2 shows “Due to” Company #1 $  880.00

This is a discrepancy that needs to be corrected.

So how can this happen?

Scenario “Double Expensed”

Company #1 buys from Vendor Alpha, Invoice amount is $120.00 inclusive HST

Company #1 Accounts payable shows Vendor Alpha is owed $120.00

Company #2 pays Vendor Alpha $120.00 with Corporate Credit Card on behalf of Company #1

To reconcile Company #2 Corporate Credit Card the entry is posted as an expense

  • Both companies show an expense when only one exists.
  • Accounts payable for Company A is overstated.
  • Expenses for Company B are overstated and HST for Company B is overstated.

This is just one example of what can happen if you are not reconciling the accounts on your balance sheet on a regular basis. AGOA can help you with this! Give us a call today.