Journal entry...HELP

[Romex19]

I have a two companies. The mother company pays for a lot of expenses throughout the month for the sister company. How do I enter the monthly amount in a JE on the sister company side so that the amount owed matches what has been paid by the mother company?

[Aphylis]

Hello @Romex19,

Let's work on your transactions to post them correctly on your QuickBooks Desktop.

We can consider the Sister Company as Credit Card for the other company since credit card's balance increases each time you pay or enter a purchase. This means more payable by the main business. Journal Entry is not advisable since there will be chances that what the sister company pays are the product/service of the business and Journal Entry will not track COGS for this.

Using credit card account or Bank account is one of the suggestible way to work on this kind of scenario, so you can track how much is owed and how much are paid. Then you can just create transactions as normal by paying bills or writing checks (Credit card is not for writing checks) and also receiving payments.

Here's how to create these types of account.

• Click on List, beside View and Favorites.
• Choose Chart of Accounts.
• Click on Account drop down, bottom left.
• Select New.
• Choose account type Bank or Credit Card.
• Enter the name, example Sister Company.
• Enter Description (Optional)
• Then Save & Close.

Once done, just create the payments or expenses that your sister company has paid for the business and the balance of the Account you just created will be your Payable or amount owed.

If you wish to use Journal Entry, here's how.

• Click on Company.
• Select Make General Journal Entry.
• Under Account. Choose the Liability Account (Sister company account/ follow steps above to create Liability account)
• Next line item is the Expense account that was paid. (Use Accounts Payable if there are Bills to be paid.)
• Debit the Expense and Credit the Liability,

Liability Balance will be your payable to sister company. Note that for the Journal Entry, you can only use Chart of Accounts and no way to use the Product and Services. This are also all in cash basis.

Fill me in for further questions.

[qbteachmt]

The reasons to Avoid using JE is that you don't use them when Names are involved, you don't use them for AR, AP, inventory, QB Payroll, Sales or Sales taxes. You just bypassed Cash vs Accrual Basis reporting.

You called them "parent and child" but are these under the same FEIN or Not? Because you can only have Intercompany Borrowing under very narrow conditions. So, if this is one FEIN, that should be all in one data file. If this is different FEIN, then the relational details and tax entity types, matter.

Example: Sole Porprietorships cannot be in debt to themselves. An S Corp cannot be in debt to the Sole Proprietorship, but it would have borrowed from the Person, not their other entity. Etc.

[qbteachmt]

@Aphylis

Please Learn from this input.

You have it Mostly right. Here is how this works. Yes, treating this as a Cardless Lender is fine, but let's follow the data flow:

"The mother company pays for a lot of expenses"

Not As Expense. Paying on behalf of another party when this is not the Mother Company's business activity, means they are the Lender. Every entry is Other Current Asset. That's the Only thing they did. They did not Buy goods or services. They Paid on behalf of the other party. Nothing here ever hits the P&L. This is the most important detail to watch for.

"throughout the month for the sister company."

The Sister company has benefited from the goods and services they didn't need to pay for; they did this by going more into Debt with another party. The Sister company has the Expense or Expenditure details, offset to Debt or Liability. And their payment to the Mother is paying down their Liability.

The Mother accepts this as Loan Repayment. Only interest would be income, if that is charged.

@Romex19

And there Must Be interest charged in many scenarios. You need to work with your own CPA for these relationship details, so you know what Matters.

[Romex19]

Thank you everyone for your responses...

There are separate FEIN's for the companies.  Hence, I wanted to make a look like a loan and just add the monthly expenses in one lump sum at the end of the month to account for the money (aka loan) spent by the mother company into the sister company as a JE.  I was a little vague on that before...

[Romex19]

Thank you for your responses...

There are separate FEIN's for the companies.  Hence, I wanted to make a look like a loan and just add the monthly expenses in one lump sum at the end of the month to account for the money (aka loan) spent by the mother company into the sister company as a JE.  I was a little vague on that before...

[Romex19]

THANK YOU!! Exactly what I was trying to say and that you figured that out in my cryptic few words is AWESOME.

So...how do I do the journal entry on the sister company side when I want to add the monthly expenses in one lump sum at the end of the month to account for the money (aka loan) spent by the mother company into the sister company.  

Still not sure how to do this even though you explain my intention of what needs to happen...

[qbteachmt · Accepted solution]

There is no Journal Entry. As noted, an easy tool is to set up a CreditCard Type of account and name it for Owed To Mother Company. Now you use Banking menu > Enter Credit Card Charge for each expense detail paid for by the Mother company, inside of the Sister company bookkeeping. This is the Spending that was not paid for by the Sister, but paid on their behalf by the Mother company. each Date of Spending is entered and that increases the Running Balance owed to the Mother company. When you are ready to make a Repayment, that is Banking menu > Write Check, listing on the expenses tab entry only that Credit Card Type account, and payee = the Mother company.