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