My client, Tammy, has multiple companies (each company does have its own EIN) and thus is always transferring cash between companies:
I have recommended to Tammy not to abuse this practice due to tax reasons, especially if she were to ever create business structures that would require, amongst other things, these transfers to be treated as taxable gains.
However for Tammy, her business structures are the types that require more of a simpler approach to the balance sheet bookkeeping.
- One way to handle transfers for Tammy (between her companies and NOT from Personal accounts) is to create basic investment equity accounts:
- Company A wants to transfer funds to Company B, thus Company A would create an “investment into Company B” equity account, while Company A would create an “investment from Company A” equity account.
- Another way to handle transfers for Tammy (between her companies and NOT from Personal accounts) is to create “Due To/From” asset/liability accounts:
- Company A wants to transfer funds to Company B, thus Company A would create a “Due To/From Company B” asset account, while Company B would create a “Due To/From Company A” liability account.
The first option above should require at least a periodic reconciliation between the two company’s corresponding equity accounts as the investment “to” from the first company should equal the investment “from” from the second company.
The second option above should be treated as a loan with a loan contract between both companies, thus the company receiving the funds should have to pay back the company that disbursed the funds, complete with interest as well.
Note: AccuraBooks is a bookkeeping firm only, so please consult with your Certified Public Accountant for verification and clarification about the contents of this article.