Intercompany revenue elimination - for recharges

IIrina10y ago

Dear Sir, Please, I have a real life question regarding recharges of utilities, by the Subsidiary to the Parent: The utilities invoice is received by the Subsidiary, which books the following: DR Sundry receivables without Intercompany code = CR Supplier without Intercompany code and the Subsidiary recharges the expense to the Parent: DR Receivables with Intercompany code = CR Sundry receivables without Intercompany code The Parent books: DR Expense without Intercompany code = CR Supplier with Intercompany code The question is: How should the Parent eliminate the Intercompany expense? The amount can be determined and eliminated by the Parent, but the Subsidiary has no revenue related, as the booking is made using Sundry receivables, by the Subsidiary. Thank you in advance, Irina

P2-D2Tutor10y ago#1

Hi, It looks like the entry in the parent's books is OK. I don't quite understand what it happening in the subsidiary's books. Would they not DR Expense CR Payable? I don't see why the DR Sundry receivable. On recharging it to the parent would they not DR Receivable CR Revenue? If that was done then the elimination would DR Revenue in the subsidiary's books CR Expense in the parent's books. Hope that helps give you an idea. You need to look at those initial entries in the subsidiary. Thanks

IIrina10y ago#2

Thank you very much for your reply! I would like to add some information, to make it clearer. The subsidiary is just INTERMEDIARY. The invoice is issued by the Electricity Company. The Electricity Company is issuing the invoice to the Subsidiary, which in turn, recharges the cost to the Parent, because the Parent is the one using that Electricity. This is why the Subsidiary books the entry using Sundry Receivables, and does not book ANY Revenue. Only the Parent books the related expense. [What do you think: Could it be that since the Subsidiary does not book any Revenue in association, then the Parent should NOT eliminate the Expense, as Intercompany?] Thank you again!

P2-D2Tutor10y ago#3

Hi, I understand what is being done with regards to the recharge but I don't understand their reasoning behind the initial entries in the subsidiary. I think it is something that you need to discuss with the accounting team who process the entries. Thanks

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