Many contractors run several legal entities: an operating company, an equipment company, a payroll company, a real-estate holding company. When one charges another, both record it. The seller records revenue and a due-from receivable; the buyer records a cost and a due-to payable. Each entity’s entry must balance on its own, and the group’s intercompany balances must match pair by pair.
Why it matters
Mismatched intercompany balances are a classic consolidation headache, and intercompany profit has to be removed when reporting the group.
Worked example
EquipCo charges OpCo’s job 24-118 $10,000 for equipment (sample data). EquipCo: Dr Due From OpCo $10,000 / Cr Equipment Rental Revenue $10,000. OpCo: Dr JC – Equipment $10,000 / Cr Due To EquipCo $10,000. On consolidation both pairs are eliminated.
Common mistakes
- Recording only one side.
- Settling intercompany balances in cash without recording it in both entities.
How os.construction handles it
In the accounting preview’s multi-entity design, an intercompany rule posts both halves in one posting, and a reconciliation must net to zero before consolidation. Intercompany automation is Planned. See Financial reports.