Intercompany Bank Transfer Journal Entry
Intercompany bank transfers occur when one entity within a corporate group transfers funds to another entity within the same group through bank accounts. Properly recording these transactions ensures accurate financial statements for each entity.
Scenario:
Company A transfers ₹75,000 from its bank account to the bank account of its subsidiary, Company B.
1. Recording the Bank Transfer by Company A
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Intercompany Receivables A/c | 75,000 | |
| To Bank A/c | 75,000 | |
| (Being funds transferred to Company B) |
Explanation:
- Intercompany Receivables A/c is debited to record the amount due from Company B.
- Bank A/c is credited to reduce the bank balance of Company A.
2. Recording the Bank Receipt by Company B
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Bank A/c | 75,000 | |
| To Intercompany Payables A/c | 75,000 | |
| (Being funds received from Company A) |
Explanation:
- Bank A/c is debited to increase the bank balance of Company B.
- Intercompany Payables A/c is credited to record the liability to Company A.
Adjusting for Intercompany Transactions
To ensure accurate consolidated financial statements, intercompany transactions must be eliminated during the consolidation process. Here's an example of an elimination entry:
3. Elimination Entry for Consolidated Financial Statements
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Intercompany Payables A/c | 75,000 | |
| To Intercompany Receivables A/c | 75,000 | |
| (Eliminating intercompany bank transfer) |
Explanation:
- Intercompany Payables A/c is debited to eliminate the liability recorded by Company B.
- Intercompany Receivables A/c is credited to eliminate the asset recorded by Company A.
