“Due to” and “Due from” accounts are used in accounting to track amounts that are owed between entities, often within the same company or between related companies. These entries typically arise in intercompany transactions, where one entity owes money to another, or when funds are transferred between different parts of an organization.
Example 1: Due to/Due from Entry Between Two Departments
Assume Company A has two divisions: Division X and Division Y. Division X provides $5,000 worth of services to Division Y. Instead of making a cash payment, the amount is recorded in Department X as “Due from Department Y” and “Due to Department X”. “Department Y.
Journal Entry in Department X:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 08-15-2024 | Due from Department Y A/c Debit | 5,000 | |
| 08-15-2024 | To Service Revenue A/c | 5,000 |
Journal Entry in Department Y:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 08-15-2024 | Service Expense A/c Debit | 5,000 | |
| 08-15-2024 | To Due to Department X A/c | 5,000 |
Explanation:
- Due from Department Y is debited in Department X to record the receivable from Department Y.
- Service Revenue is credited in Department X to recognize the income from the services provided.
- Service Expense is debited in Department Y to record the expense for the services received.
- Due to Department X is credited in Department Y to record the payable to Department X.
Example 2: Intercompany Loan Between Parent and Subsidiary
Parent Company P lends $50,000 to its Subsidiary Company S.
Journal Entry in Parent Company P:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 09-01-2024 | Due from Subsidiary S | 50,000 | |
| 09-01-2024 | To Bank A/c | 50,000 |
Journal Entry in Subsidiary Company S:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 09-01-2024 | Bank A/c Debit | 50,000 | |
| 09-01-2024 | To Due to Parent P A/c | 50,000 |
Explanation:
- Due from Subsidiary S is debited in Parent Company P to record the receivable from Subsidiary S.
- Bank is credited in Parent Company P to reflect the outflow of cash.
- Bank is debited in Subsidiary Company S to record the receipt of funds.
- Due to Parent P is credited in Subsidiary Company S to record the payable to Parent Company P.
Example 3: Repayment of Intercompany Loan
Subsidiary Company S repays $20,000 of the loan to Parent Company P.
Journal Entry in Subsidiary Company S:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 10-01-2024 | Due to Parent P A/c Debit | 20,000 | |
| 10-01-2024 | To Bank A/c | 20,000 |
Journal Entry in Parent Company P:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 10-01-2024 | Bank A/c Debit | 20,000 | |
| 10-01-2024 | To Due from Subsidiary S A/c | 20,000 |
Explanation:
- Due to Parent P is debited in Subsidiary Company S to reduce the liability as part of the loan is repaid.
- Bank is credited in Subsidiary Company S to reflect the outflow of funds.
- Bank is debited in Parent Company P to record the receipt of funds.
- Due from Subsidiary S is credited in Parent Company P to reduce the receivable as part of the loan is repaid.
Example 4: Allocation of Shared Expenses
Parent Company P pays $15,000 for a shared service that benefits both itself and its Subsidiary Company S. The cost is to be shared equally.
Journal Entry in Parent Company P:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 11-01-2024 | Shared Service Expense A/c Debit | 15,000 | |
| 11-01-2024 | To Bank A/c | 15,000 |
Journal Entry to Allocate to Subsidiary Company S:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 11-01-2024 | Due from Subsidiary S A/c Debit | 7,500 | |
| 11-01-2024 | To Shared Service Expense A/c | 7,500 |
Journal Entry in Subsidiary Company S:
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 11-01-2024 | Shared Service Expense A/c Debit | 7,500 | |
| 11-01-2024 | To Due to Parent P A/c | 7,500 |
Explanation:
- Shared Service Expense is debited in Parent Company P to recognize the total cost of the service.
- Bank is credited in Parent Company P to reflect the payment made.
- Due from Subsidiary S is debited in Parent Company P to record the amount to be reimbursed by Subsidiary S.
- Shared Service Expense is credited in Parent Company P to reduce the expense allocated to itself.
- Shared Service Expense is debited in Subsidiary Company S to recognize its share of the cost.
- Due to Parent P is credited in Subsidiary Company S to record the liability owed to Parent Company P.
These examples show how “Due to” and “Due from” accounts are used to track intercompany or intra-entity transactions, ensuring accurate recording and reconciliation of amounts owed between related parties.