A Brief Overview of Intercompany Transactions

Have you ever wondered what an intercompany transaction is? Today we are going to give you a brief overview and a free eBook on accounting for intercompany transactions just for reading!

Intercompany transaction occurs when two entities within the same reporting structure have some sort of transaction with one another. This could range from the entities owing each other money to using each other for services and paid for it on the spot. If these entities work reporting together it is very likely that these transactions would be considered related-party transactions. In either circumstance the reason why they are labeled as such is because the relationship between the two entities implies that the transaction may not have full commercial substance in many cases. 

When reporting on a consolidated basis, it is important to have these transactions eliminated for financial statement presentation because it doesn't make sense to say that the Company owes itself one million dollars and therefore has assets and liabilities of a million dollars each. 

This concept might be more advanced than what many small business owners are used to but it is important to understand it if you ever scale your business up to the point where you have multiple reporting units. Having multiple reporting units (multiple companies) is very useful when dealing in separate and distinct areas. It is a common practice when investing in real estate to have separate LLCs for each property to track expenses more easily. On top of that, this consideration also needs to be done when entering into a joint venture separate from the primary company. 

Even if intercompany transactions are not a consideration for you right now, they could be in the future and it is valuable to learn about them for you need to. That is why we created this shorty book on how to account for intercompany transactions with examples of some of the most common inter-company transactions. If you are interested in reading it take a look at it for free right here, just click the button below! 

Thank you very much for your support! If you know anyone who would be interested in this type of content. please feel free to share it with them as it helps us out tremendously.