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QuickBooks Trick: How to Handle Money Moving Between Businesses

Work for a boss that just loves to move money between their businesses?

Trying to figure out just how to accomplish this properly in QuickBooks without going nuts?

You're in luck...

THE TALE OF TWO COMPANIES

In our example to explain this concept, let's say you are keeping the books in QuickBooks for the ABC Company and the XYZ Company. Lo and behold, the owner just sent you an e-mail letting you know that he moved $10,000 from the checking account of the ABC Company to the checking account of the XYZ Company to cover some upcoming payments the XYZ Company has to make.

Your first thought may be to head for the Banking menu and select the "Transfer Funds" option to take care of recording this transaction. While that choice does work if you are transferring funds within the SAME company, it doesn't work very well when faced with an example like ours where funds are transferred BETWEEN companies.

MAKE FRIENDS WITH THE DUE FROM AND DUE TO ACCOUNTS

In our example above, we actually have two transactions to tackle - the movement of the $10,000 OUT of the ABC Company checking account and the movement of the $10,000 INTO the XYZ Company checking account.

Let's break it down...

First, the entry on the ABC Company books:

When inside the ABC Company QuickBooks file, the first thing you will want to do is create a new account in your chart of accounts. We'll classify this account as an "Other Current Asset" and give it a name of "Due from XYZ Company". Once you have completed that step, simply go to the Write Checks window, and set it up just like the screen shot below:

  Due From XYZ

Once you save this transaction, the ABC Company checking account will be reduced by $10,000, and an account will appear on the balance sheet called "Due from XYZ Company". This is similar to (but not exactly the same as) money due you from customers - the ABC Company will receive this $10,000 back eventually (we hope!).

Then, the entry on the XYZ Company books:

Now you have to record the $10,000 coming into the XYZ Company checking account. By the way, see my blog post explaining that this is NOT income to the XYZ Company.

The first thing you'll want to do in the XYZ Company QuickBooks is to create a new account in the chart of accounts. It will be named "Due To ABC Company" and it will be a type of "Other Current Liability". Once you have done that, simply go into the XYZ Company check register (this is the easiest of several methods to handle it) and record the deposit as shown in the screen shot below:

  Due to ABC Company 

When this transaction is complete, QuickBooks will now show a deposit of $10,000 into the XYZ checking account, and also a liability showing up on the balance sheet called "Due to ABC Company" for $10,000. This is similar to (but not exactly the same as) money you owe your vendors. Eventually, ABC Company will be paid back (we hope!).

TIME FOR PAYBACK!

When the boss says it is time for XYZ Company to pay back the $10,000 it owes ABC Company, you'll have two entries to make:

Entry #1 - On the XYZ Company books, write a check payable to ABC Company for $10,000 and use the "Due to ABC Company" account you created above. Once you enter that, the XYZ Company checking account will be lighter by $10,000 AND XYZ will no longer be showing a liability on the balance sheet called "Due to ABC Company"

Entry #2 - On the ABC Company books, go to the check register and record a deposit of $10,000. Use the "Due from XYZ Company" account created above. Once you enter that, the ABC Company checking account will have $10,000 extra in it AND there will no longer be an amount showing in the "Due from XYZ Company" account, as it has been paid back in full. Yahoo!

Naturally, there may be more than one transaction into these "due from" and "due to" accounts before any money is actually paid back. That's ok - the account balances will always be accurate to show how at a glance much is "due from" or "due to" other companies.

Need personalized help to sort out the intercompany transactions in your businesses? Click the "Contact Scott" button below and get the help you need.

RELATED POST: Moving Money Between Bank Accounts Is NOT Income in QuickBooks

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Comments

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Sandy:

You'll want to check in with the trust accountant on the best way to handle this.

Since the money is not going to be paid back, the due to/due from concept does not apply.

Normally, something like this is a distribution or investment of some type.

Scott Gregory

What if we are moving money between a living trust and a trust account? Do I still use the due to and due from? And the money is not going to be paid back.

Hi My Company open a Brokerage account in Wells Fargo. So i need to open the same in Quickbook. So its under Bank Account or Other Current Assets

Miriam:

The best bet for your question is to check in with the CPA for the business. There are many ways to handle this type of question.

Scott Gregory

what if the money from ABC company is investment in XYZ company.
Equity investors give the Money to ABC that will go to XYZ to complete a project.
How do I book that type of transfer?

Madlav:

Normally, the transfer of inventory is recorded as a sale on the books of the transferring company and a purchase on the books of the company that receives the inventory.

However, there are some other possibilities here depending on the specifics of your business setup.

You'll want to get guidance from your accountant on how they want this intercompany information handled.

Scott Gregory

LJ:

You'll want to check with your CPA/accountant on the best way to track this type of information.

If money is leaving the ABC Company checkbook, it has to be recorded as a payment - your accountant will determine what account to use.

If money is coming into the XYZ checkbooks, it has to be recorded as a deposit.

Scott Gregory

What if you have 2 different businesses, use ABC Co. to forward payments for XYZ co so transfers are not to pay back but to cover expenses of XYZ co. Is there a way to record this in quickbooks? Thanks, LJ

Thanks for this. Question though how do you handle inter company transactions that deals with the transfer of inventory? Should it be recorded as normalsales transactions included sales tax or an adjustment?

Ramsay:

You'll want to check with your accountant on the best way to handle the question you ask. There are several different ways to approach it - they will be in the best position to help you sort it out.

Scott Gregory

But what if your not paying ABC company back because you are transferring the money to XYZ to close ABC account?

thank you for posting this information. Extremely helpful

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