Intercompany Receivables Journal Entry
Intercompany transactions occur between different entities within the same parent company. Recording intercompany receivables ensures that the financial statements of each entity accurately reflect the amounts due from one another.
Scenario:
Company A (the parent company) sells goods worth ₹100,000 to its subsidiary, Company B, on credit.
1. Recording the Sale of Goods by Company A
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Intercompany Receivables A/c | 100,000 | |
| To Sales Revenue A/c | 100,000 | |
| (Being goods sold on credit to Company B) |
Explanation:
- Intercompany Receivables A/c is debited to record the amount due from Company B.
- Sales Revenue A/c is credited to recognize the revenue earned from the sale.
2. Recording the Purchase of Goods by Company B
| Particulars | Debit (₹) | Credit (₹) |
|---|---|---|
| Purchases A/c | 100,000 | |
| To Intercompany Payables A/c | 100,000 | |
| (Being goods purchased on credit from Company A) |
Explanation:
- Purchases A/c is debited to recognize the cost of goods purchased.
- Intercompany Payables A/c is credited to record the amount payable 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 | 100,000 | |
| To Intercompany Receivables A/c | 100,000 | |
| (Eliminating intercompany transactions) |
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.
