Q: Situation: Family owns two corporations (A and B). Both companies are renting the same building and share some equipment and employees (these are general contracting companies). There’s a Master Card (MC) that often is used for business purchases, however company B can be asked to pay for some or all balance on MC. Or, other way around (e.g. company B buys equipment that company A pays for).
Bookkeeping is done separately for each company. There’s no clear separation about what company claims which MC expenses. Currently each company has MC account on their books and some MC expenses are recorded in one company and some in another, payments on MC are done without direct connection to the amount of expenses booked to a specific company. Since it’s one common MC card, company A can just say to the company B: “Please pay $5000 toward the balance on MC” and cheque is written by company B to the MC on it’s books.
MC has never been reconciled!
I’d like to ask for an advise on how to deal with these MC transactions.
I assume that ideally these transactions should be handled as intercompany transactions?
For instance, if company A bought a small equipment for $300 for their use, but company B paid for it, what should be on the books of B?
My suggestion (please advise if this is correct):
Dr Intercompany transactions (current asset) $300
Cr Bank
But since companies A and B don’t want to use intercompany accounts, is there’s an alternative with regard to bookkeeping?
Many thanks for all your help!
A: First of all, if these companies are separate because the owner is trying to limit intercompany liability all this sharing is increasing the liability. A court could, and probably will, treat them as one company if one of them is sued.
Second, you need to get the MC account reconciled because otherwise you have no way of knowing if your expenses are accurate.
If they insist on sharing a credit card, and they really shouldn’t, only one company should have the credit card account on its books. If a credit card charge is for the sister company instead of using an expense account you’d use an asset account called something like “owed FROM sister company”.
The sister company would use either a $0 credit card charge (positive expenses, negative “owed TO sister company” liability account) or use a journal entry (DR expense, CR “owed TO sister company” liability account).
You’d use the same two accounts for other shared expenses making sure that the “Owed FROM” asset account exactly matches to “Owed TO” liability account, and when a payment is made from one company to the other, use the “Owed TO” liability account on the check and the “Owed FROM” asset account on the deposit.
Third, there’s a 3rd party Intercompany Transfer Utility that might help with all this:
http://www.q2q.us/ITUOverview.htm
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