Inter unit entries

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

19 August 2014 Hi, my company is having 6 factories and there are sale & purchase of semi-finished and packing material products between these factories.

CURRENT PRACTICE:
We pass 3 entries because we have Head Office (HO) and 2 factories.

1. at HO we pass
Buying Factory A/c - - Dr
To Selling Factory A/c

2. at Selling Factory we pass
HO A/c - - Dr
To Buying Factory

3. at Buying Factory we pass
Selling Factory A/c - - Dr
To HO A/c

My question is whether this long procedure is right & is it required?

Why we cannot pass only 2 entries showing buy & sell at Factory itself without involving HO because anyhow we need to prepare individual financials of factories.

Is there any alternative for this?

And the same practice we follow for TDS, there we transfer TDS of all factories to HO as follows -

1. at HO we pass
TDS A/c - - Dr
To Bank A/c

After this entry we pass

2. at HO again we pass
Factory A/c - - Dr
To TDS A/c

3. at Factory we pass
TDS A/c - - Dr
To HO A/c

My question is same is it right or there is an alternative like directly paying from factory bank a/c and passing the entry without involving Head Office (HO)?

PLEASE HELP ME . . .

Querist : Anonymous

Querist : Anonymous (Querist)

20 August 2014 OMG, What has Happened to the so called Experts of ICAI? No reply . . . surprising . . .

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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01 August 2024 Your current practice for inter-unit transactions and TDS is quite detailed but can be streamlined. Let's break down the processes for both inter-unit transactions and TDS payments.

### **1. Inter-Unit Transactions**

**Current Practice:**

1. **At HO:**
- Buying Factory A/c Dr
- To Selling Factory A/c

2. **At Selling Factory:**
- HO A/c Dr
- To Buying Factory

3. **At Buying Factory:**
- Selling Factory A/c Dr
- To HO A/c

**Analysis:**

Your current practice involves a lot of entries to reflect inter-unit transactions, which can be cumbersome. Ideally, these transactions can be simplified.

**Alternative Approach:**

- **Direct Inter-Unit Entries:**
Each factory can pass the following entries for their transactions:

**At Selling Factory:**
- Sale to Buying Factory A/c Dr
- To Inventory/Finished Goods A/c

**At Buying Factory:**
- Inventory/Finished Goods A/c Dr
- To Purchase from Selling Factory A/c

- **Centralized Accounting:**
Alternatively, you can centralize the inter-unit transactions through HO, but with fewer entries:

**At HO:**
- Buying Factory A/c Dr
- To Selling Factory A/c

This approach consolidates all inter-unit transactions through the HO, but you should ensure that the records are accurately maintained at the factory level.

**Benefits of Direct Entries:**

- **Simplified Accounting:** Directly passing entries at the factory level reduces the complexity and ensures that each factory's books are accurate and reflective of the transactions.
- **Efficiency:** Reduces the number of entries and the potential for errors in recording inter-unit transactions.

### **2. TDS Payments**

**Current Practice:**

1. **At HO:**
- TDS A/c Dr
- To Bank A/c

2. **At HO Again:**
- Factory A/c Dr
- To TDS A/c

3. **At Factory:**
- TDS A/c Dr
- To HO A/c

**Analysis:**

The current practice of routing TDS payments through HO adds complexity. It may be more efficient to handle TDS payments directly at the factory level.

**Alternative Approach:**

- **Direct Factory Payments:**
Each factory can pay TDS directly from its bank account. The entries would be:

**At Factory Level:**
- TDS Payable A/c Dr
- To Bank A/c

**HO Entries:**
- At HO, you simply need to record the transfer of funds to the factory’s TDS account, if needed:

**At HO (if required):**
- Inter-Unit Transfer A/c Dr (Factory’s account)
- To Bank A/c

However, if the TDS is handled centrally by HO, then:

**At HO:**
- TDS Payable A/c Dr
- To Bank A/c

**At Factory Level (for reimbursement or allocation):**
- HO A/c Dr
- To TDS Payable A/c

**Benefits of Direct Payments:**

- **Reduced Complexity:** Direct payments reduce the number of transactions and accounting entries.
- **Better Tracking:** Each factory handles its TDS payments directly, making tracking and reconciliation simpler.

### **Summary:**

- **Inter-Unit Transactions:** Simplify entries by passing direct transactions at the factory level or centralize through HO with fewer entries.
- **TDS Payments:** Direct payments from factory accounts are generally simpler and reduce the complexity of multiple entries through HO.

Ultimately, the choice between these methods depends on your organizational preferences and the complexity of your accounting system. Simplifying these processes can enhance efficiency and accuracy in financial reporting.

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