Inter-company transactions - what are the general journal entries?

If main company EFG Inc. pays for courier services for holding company OPQ Inc., what are the general journal entries to show that OPQ Inc. now owes EFG Inc., courier fees?

If originally for EFG Inc.:

Dr.     5640 Courier & Postage Expense               $10.24

Dr.     2315 GST Paid on Purchases                     0.51

Cr.          A/P - Courier Company                             $10.75

     To record purchase made on account.

Dr.     A/P - Courier Company                        $10.75

Cr.          Bank                                              $10.75

      To record payment of account.


Then to show that OPQ Inc. owes EFG. Inc.:

Dr.    Loan from Shareholder, OPQ Inc.               $10.75

Cr.          Retained Earnings                                  $10.75

     To record intercompany transaction.


Am I on the right track at least?




  • 0

    Kristine2012 said:
    Then to show that OPQ Inc. owes EFG. Inc.:

    You would not normally use the Retained Earnings account for transactions throughout the year, instead the 'income and expense summary' is 'closed' to 'Retained earnings'.

    There should be only a few accounting entries per year, such as annual earnings and dividends, and because these transactions have legal implications and come under (expensive, by the hour) detailed scrutiny, the fewer the better.  

    If holding company OPQ and subsidiary EFG have a GST-25 agreement in place, then they do not charge each other GST on goods and services between the two companies.  

    If they DO have such an agreement, the intercompany amount is $10.24  (just the expense)

    If they DO NOT have such an agreement, the intercompany amount is $10.75

    To record the intercompany amount:

    You're basically 'selling through' the courier expense to the parent company, so you would debit the intercompany account the expense amount, then credit the expense account, and possibly the GST Paid account.

    Or, you could do it in one step.  When recording the payable invoice to the courier, use the intercompany account instead of the expense account.   If there is no GST agreement in place, record the GST to the intercompany account as well.

    I've found it easiest to set up recurring, sales and purchase invoices between the two companies if there are more than a few transactions per year, so I can bring each type of transaction up and just fill in the numbers.