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Salt Lake City Bookkeeping Blog

Bookkeeping for Intercompany Expenses, and Reimbursements

Posted by Joe Mazur on Mar 4, 2011 11:30:00 AM

It is quite common to see firms add different LLCs throughout the life of their business.  This often makes sense for many different financial benefits, but it often leads to very difficult bookkeeping.  Once the transfer of money between the companies begins, the books need to be checked continuously to make sure the balances always tie.  "The balances of what?" you might ask.  

What accounts to use? 

When money is transferred between companies, there are a few different options on how to properly handle these transfers of funds. 

When money is transferred for the sake of keeping bank balances in the positive, then the transfers are handled as a liability or an asset.  I find it easier to set up all of the possible LLCs the transfers could be going between as an 'Other Current Liability.'  Since the balance will change between a positive and negative number, it is not always technically a liability, but it is sometimes easier to set it up this way in QuickBooks.  It helps to create a spreadsheet to show all of the possible accounts between all of the companies.  Print this spreadsheet out and always make sure to fill it out at the end of the day to make sure you handled everything correctly.  These account balances need to be checked continuously to make sure that the balance always ties.  If they don't, something was done incorrectly.

If one of the LLCs is always used to pay the bills, then you would want to set up a receivable for all of the possible companies that would have bills paid on their behalf.  For instance, the LLC (let's call it LLC One) that pays the utility bill should only expense half of the bill when coding the charge and code the other portion to the receivable from LLC Two. Photocopy the bill and submit it as an amount due to LLC Two for their portion of the bill paid.  LLC Two then cuts a check as an expense to LLC One, who then deposits into LLC Two's receivable account.  Confused? As you can see, it can get out of hand pretty quick.

Using a credit card issued to LLC One to pay for LLCs Two, Three, and Four expenses can be tricky and can lead to a disaster faster than expected if the proper amount of time isn't dedicated to this.  QuickBooks Online Banking is a great tool, but if you get too comfortable downloading transactions, you can lose control of the amounts owed between all LLCs.  It would make sense to use a different credit card for each LLC, but sometime that isn't too practical if someone owns 10 LLCs.  If the credit card is used at the same office supply store for different LLCs, then it needs to be coded accordingly, either as an expense to LLC One or as a 'Other Current Liability' or as an 'Accounts Receivable,' depending how you set it up based on the two different methods mentioned above.

Once an error goes unnoticed, the bookkeeping system that took so long to get in place can become unraveled and start producing inaccurate financial reporting and possibly lead to filing your taxes incorrectly.  If you have the time to dedicate to this, and have questions, please contact me.  On the other hand, if you read this and can't figure out how to properly account for these transactions and you think your books are on the verge of being a disaster, let me know and I would be glad to help; email me.

Topics: Bookkeeping Errors, quickbooks online banking, bookkeeping challenges, online banking, intercompany