Beware of Intercompany Transactions

intercompany transactions

Does your firm own a sister company? Do you own your building and your company? Did you start a complimentary company?

If you answered yes to any of these, or merely own multiple companies, than this article is for you! One of the number one issues we see at Coveted Financial is improper reporting of intercompany transactions. Especially when it comes to intercompany loans.

Have you borrowed money from Company A to pay Company B payroll? While this is acceptable, how you record these transactions and then record the repayment transaction is often questionable. When not recorded properly this has a domino effect and results in improper financial reporting to your commercial lender, accountant, and even the IRS. While this is a very basic example, the same concept can be applied to all sorts of accounting transactions between holding companies and subsidiaries.

“Intercompany accounting faces additional challenges as it deals with money that flows across multiple legal entities of a company…A 2016 Deloitte poll of more than 3,800 accounting and finance professionals suggests that disparate software systems in the different legal entities pose the biggest problem (21.4% of respondents), followed by intercompany settlement (16.8%), complex intercompany agreements (16.7%)…” as stated in the Journal for Accountancy. There is no doubt that intercompany transactions pose a risk to your accounting…so what can you do about it?

Have a 3rd party review your books. While you may have an internal bookkeeper, or even a Director of Finance that handles your financial books, who is reviewing your books on a consistent basis? Chances are your accountant does an annual review and is on-call for questions, but is not working on the day-to-day transactions of the firms. Coveted Financial offers a qualified team of professionals that work together on multiple levels of your finances; from accounting to fractional CFO services. This means there are multiple levels of review from our company alone.

The Takeaway: Intercompany transactions are often complicated and time-consuming. Incorrect entries can lead to extremely damaged financial reports that harm your credit potential, and possibly your taxes. If you own more than one company and have logged any loans or transactions between the two firms, call Coveted today for a full review of your books.

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