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How to do inter company transaction

Deepak (Assistant Manager) (115 Points)

26 September 2013

Hi..

There are 3 companies company A, B and C, A and B are in India and C in UK. These companies are group concern.

Company A provide the services to C, C transfer the half payment to company B, and B transfer that payment to A.

Here how can we do transaction entries in the books of Company A and B ?

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12 Replies

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 29 September 2013

Journal Entries in the Book of A.

C A/c Dr. xxxx

To Revenue xxxx

(being services provided to C)

Cash / Bank A/c Dr. xxxx

To B xxxx

(being amount received from B)

B A/c Dr. xxxx

To C xxxx

(being payment made by B on behalf of C)

In Book of B

Cash / Bank A/c Dr. xxxx

To C xxxx

(being Cash receipt from C)

C A/c Dr. xxxx

To A xxxx

(being on behalf payment made by C now transferred to A)

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Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 29 September 2013

A A/c Dr. xxxx To Cash xxxx (being Amount paid to A)

Deepak (Assistant Manager) (115 Points)
Replied 30 September 2013

Thank u very much..

Shivani (Learner) (1881 Points)
Replied 03 October 2013

Samrendra Sir

Entries in Books of C

1) Expense

To A

2) B

To Cash

3) A

To B

Am I right Sir?

Regards

1 Like

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 04 October 2013

Yes Shivani......Only thing not considered here is foreign exchange flucuation gain or loss if any

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CA LOVELY ARORA (C.A. B.Com (H) Graduate) (2151 Points)
Replied 06 October 2013

Dear samrendra sir and shivani mam,

how all you came to the entry, for example,

B A/c Dr... XXX
To A A/c....... XXX

in books of C???

and same in case of books of A and B, though they are group concerns, but why and how can one company is concerned with the entry effect in other books.. for e.g. A made a payment to B and told him to give half of the amount to C from it... then in books of A, the entry would be just B Dr.... To Cash/Bank... how and why will A concerned with making half of payment further to C by B????

Rectify me, if i am wrong.. and sorry, i was concentrated on this entry only.. actually, i didn't read the whole query and response.. but kindly, tell me should such entry come in books of other group concern??

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 07 October 2013

Dear Lovely,

This entry arises because of instruction received to B from C to pay half of his outstanding to A

therefore its transfer of outstanding from A to B in books of C

A A/c Dr... XXX

To B A/c....... XXX

in books of C???

sree (Finance Professional) (44 Points)
Replied 12 October 2013

Good morning,

On the Same note :: I have a Question, Since Company A and B are in India, can they maintain Same Bank Account but 2 different Books for Transaction entries?

Please suggest me.

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 12 October 2013

I don't think both companies maintain one bank account because of sime practical issues.... First... Name of both the companies are different than on whose name company receive cheque Second..... How does bank assess crediatability of particular subsidiary to issue any loan to company in case of operating common bank account Third..... who will operate bank operation in case they have different bank signatories There may be more complex situation arise if common bank account maintained bydiffrent subsidiaries

Shivani (Learner) (1881 Points)
Replied 31 October 2013

Dear Samrendra and Lovely Sir

When C is making payment to B and B in turn making payment to A, then does it imply that C must be owing some amount to B and A must be owing some amount to B, before the transaction between A and C took place?

Please do reply.

I am getting confused.

I felt that for e.g. in books of A after receiving amount from B, A had to give B back that amount but since B is making payment on behalf of C, A set off the two account by passing following entry

To C

Shivani

Samrendra (Asst. Manager- Internal audit) (221 Points)
Replied 03 November 2013

Dear Shivani, Whether B has owned money from A or C or vice versa doesn't matter in this case.... Irrespective money is owned or not what ever amount is paid by B is payment onbehalf of C

1 Like