Transferring cash from one company to another within a group of companies involves recording intercompany transactions. Here’s how you would record the journal entries for both the company transferring the cash (Company A) and the company receiving the cash (Company B).
Example: Transferring $25,000 from Company A to Company B
Company A’s Journal Entry (Transferring Entity):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 09-01-2024 | Intercompany Receivables | 25,000 | |
| 09-01-2024 | To Cash | 25,000 |
Explanation:
- Intercompany Receivables will debited to record the amount that Company B owes to Company A.
- Cash will credited to reflect the cash outflow from Company A.
Company B’s Journal Entry (Receiving Entity):
| Date | Account Title | Debit ($) | Credit ($) |
|---|---|---|---|
| 09-01-2024 | Cash | 25,000 | |
| 09-01-2024 | To Intercompany Payables | 25,000 |
Explanation:
- Cash will debited to record the cash inflow into Company B.
- Intercompany Payables will credited to recognize the amount owed to Company A.
These journal entries record the transfer of cash between the two companies, ensuring that both companies’ books accurately reflect the transaction. When preparing consolidated financial statements, these intercompany balances would be eliminated to avoid double-counting.