Intercompany Cash Transfer Journal Entry
Intercompany cash transfers occur when one entity within a corporate group transfers funds to another entity within the same group. Properly recording these transactions ensures accurate financial statements for each entity.
Scenario:
Company A transfers ₹50,000 in cash to its subsidiary, Company B.
1. Recording the Cash Transfer by Company A
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Intercompany Receivables A/c | 50,000 | |
| To Cash/Bank A/c | 50,000 | |
| (Being cash transferred to Company B) |
Explanation:
- Intercompany Receivables A/c is debited to record the amount due from Company B.
- Cash/Bank A/c is credited to reduce the cash balance of Company A.
2. Recording the Cash Receipt by Company B
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Cash/Bank A/c | 50,000 | |
| To Intercompany Payables A/c | 50,000 | |
| (Being cash received from Company A) |
Explanation:
- Cash/Bank A/c is debited to increase the cash 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 | 50,000 | |
| To Intercompany Receivables A/c | 50,000 | |
| (Eliminating intercompany cash 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.
