Intercompany Accounting (#158)
/In this podcast episode, we discuss the mechanics of intercompany accounting. Key points made are noted below.
Intercompany accounting is a subset of consolidation accounting.
It involves the accounting for transactions between entities that are owned by the same parent, usually with a payment arrangement.
An intercompany account is used to identify these transactions.
There must be intercompany entries on the books of the companies on both sides of a transaction, which is easier to enforce when they use the same software.
The managers of assets received from another company tend to argue for lower asset values, to minimize subsequent depreciation and write-offs.
Both entities need to agree in advance on what to record for the intercompany entry.
Regulators could challenge outstanding receivables as capital contributions, if they are not settled.