Intercompany Stuff!

NickyW Registered Posts: 97 💫 🐯 💫
Are there any MIP's who can help me!
Am doing a bit of work for a company which is a subsidiary of a US company. The UK subsid has only just set up and there have been 3 or 4 transfers of cash to the UK.
I am going to speak to the US accountant next week but would like some advice/info before I talk to her!!
Is the normal procedure to raise an invoice to the parent company to account for these transfers of cash?
I am then getting really confused as to how to account for this money in Quickbooks. I think I need to set up another bank account so I can show a transfer from their bank account into ours -but then this money received will always sit on the balance sheet as a current liability - is this correct?
I hope I am making sense!
Any replies would be greatly appreciated!


  • reader
    reader MAAT, AAT Licensed Accountant Posts: 1,037
    If the US parent is lending the UK subsidiary money then it makes sense to setup an account, like a bank account for example, and call it something to the effect of "Amount owed to/by parent company".

    If the 4 cash transfers amount to £10,000 then you should have a £10,000 CR sitting in that "Amount owed to/by parent company" account; in addition, the US bookkeeper should have a balance sheet account in their book-keeping package called something to the effect of "Amount owed to/by subsidiary undertaking" and that balance in that account should be £10,000 DR (obviously in dollars). In other words, your balance and the US balance should reconcile.

    I don't think there is any need for invoices unless the US company is charging the UK company interest on the loan (then a loan agreement should be in place). Again, in this situation I think you should have to reconcile/agree interest payable in your books with interest receivable in the US company's books.

    Another thing you may want to think about is management charges; is the US parent going to invoice the UK company for any management services that it provides to the UK subsidiary?

    I think it is important that:
    1) your books and the US company's books reconcile; e.g. if your saying the UK company owes £10,000 then in the US company's books it should say that they are owed £10,000 (obviously in dollars); similarly if your books say there is a £1,000 management expense in the P&L then in the US company's books there should be £1,000 worth of management income in their P&L, etc.
    2) receipts and payments are posted to the correct statement, i.e. if the UK company is paying interest or management charges this should be posted to the P&L; and if the UK company is repaying the loan this should be posted to the balance sheet
    3) if you are going to prepare the accounts, you will have to think about putting in a foreign currency note, ultimate controlling party note and a related party note into the accounts

    I welcome corrections to the above post in the likely event there are errors/omissions.
  • NickyW
    NickyW Registered Posts: 97 💫 🐯 💫
    That really helps - thank you so much.
  • JodieR
    JodieR Registered Posts: 1,002
    I agree with Reader.

    I've dealt with a few similar situations using quickbooks and reccomend setting up the inter-company account as a bank account. I used to set it up as an 'other current liability account' but the advantage of setting it up as a bank account is that if say the parent company pays a supplier on behalf of the subsiduery company then you can just enter the payment from the inter-company account. Keeps it nice and tidy.
  • Dawny
    Dawny MAAT, AAT Licensed Accountant Posts: 62 💫 🐯 💫

    I have a client who also has a US parent company with an intercompany loan.

    It's become really important to have an agreement put in place that an interest charge is put through on the balance of the intercompany loan, currently 5%.

    There is also a service agreement in place where by the US company pay over a fee each month for services of the UK company. An invoice is issued to the US company for this. This invoice is either 'paid' or put againt the incompany loan to reduce it, depending if cash is required that month or not to cover overheads.

    Hope this helps a little!
  • NickyW
    NickyW Registered Posts: 97 💫 🐯 💫
    Thank you all for all your replies - it all really helps.
  • NickyW
    NickyW Registered Posts: 97 💫 🐯 💫
    It's me again! Thanks to the advice offered above I have set up a bank account which shows the transfer of money.
    I have another question and I know this will sound really stupid but I have to explain tomorrow what I have done to someone who has limited financial knowledge.
    If the US transferred £6000 to our company then that £6000 is going to sit on the Balance Sheet as a current liability. I am pretty sure that this money does not have to be paid back - and this is where I get stuck - that £6000 is always going to sit there as a liability - when in fact it isn't!
    Can anyone help me out there! Again I apologise in advance if this is a really dumb question!
  • reader
    reader MAAT, AAT Licensed Accountant Posts: 1,037
    It is probably better to call this account long term investment (i.e. non-current liability); current liability is not the correct description because this money is not due within a year.
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