[gladrial]

I understand the process of needing to do intercompany transactions. However, I am at a business and they are doing intercompany transactions in a unusual manner. Company A and Company B are identified by separate cost center codes. To pay Company B for services rendered to Company A, this business debits an expense account under Company A’s cost center and then credits the same expense account under Company B’s cost center

This does not provide the level of transparency I am used to in intercompany transactions. Has anyone else seen this and does this appear appropriate?

Reg 76
Bus 82
Aud 70, 86
Far 68 ,79 ten point combo FTW
April Fools day CPA licence WA

[Anonymous]

Don't think I've seen it done this way before. Normally you would have to debit or credit an intercompany receivable or payable account. Doesn't seem right to identify different companies by cost center codes I would think this would maybe cause a tax issue as well?

[Anonymous]

Don't think I've seen it done this way before. Normally you would have to debit or credit an intercompany receivable or payable account. Doesn't seem right to identify different companies by cost center codes I would think this would maybe cause a tax issue as well?

[JohnWayneIsGod]

My old place was kind of this way. Each division had its own cost center code, but transactions used a special group of account codes to move the expense between divisions. I wish I was able to say more about it, but it has been so many months that I have become foggy on the details. Everything we did only involved codes that were anything but intuitive. Super old system too. I still have nightmares about it.

FAR - 80

Courage is being scared to death, but saddling up anyway.

-John Wayne

[gladrial]

Thanks for the advice, its not the way I have seen it done either. I have suggested that this system is not intuitive or transparent however management believes that since I am the first person to mention it, I must be crazy. AHH the life of an auditor. 🙂

Reg 76
Bus 82
Aud 70, 86
Far 68 ,79 ten point combo FTW
April Fools day CPA licence WA

[Thrawn]

Are they different legal entities or merely operation entities?

BEC 87 Feb 14
REG 84 Apr 14
FAR 82 Nov 14
AUD 86 Feb 15

[FIFOisbetterthanLIFO]

There is nothing wrong with doing it this way. They are simply skipping a step. The transactions are eliminated at the end of the year anyways.

FAR - Passed (82)
BEC - Passed (76)
AUD - Passed (89)
REG - Passed! (81)
AICPA Ethics

Licensed CPA

[gladrial]

without disclosing too much Company B's income is reported on the books of Company A and together they role up to a single parent company But for legal reasons the books for company B must be separate and distinct from A, Which is my other issue with the short cut step in elimination entries

Reg 76
Bus 82
Aud 70, 86
Far 68 ,79 ten point combo FTW
April Fools day CPA licence WA

[FIFOisbetterthanLIFO]

I guess in that case it would look bad especially if there were accusations regarding “piercing the corporate veil”

FAR - Passed (82)
BEC - Passed (76)
AUD - Passed (89)
REG - Passed! (81)
AICPA Ethics

Licensed CPA

[Author]

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