In this special topic, we will discuss Intercompany Receivables and their effect on the financial statements. We will also talk about Intercompany Receivable journal entries and how to create them.
Intercompany receivables occur when one of your company's organizations incurs a payable or receivable on behalf of another organization. This typically happens during a posting process that involves a control account. Control accounts are the accounts that you have selected, usually in the module settings screen(s), to serve consistently as one side of a transaction entry (e.g., the Accounts Payable liability accounts are selected in the Vendor Settings screen in Costpoint Accounts Payable). Numerous organizations will incur the cost, but only one organization can incur the liability. The following examples illustrate the Intercompany Receivable concept:
In Costpoint Accounts Payable, expenses are debited to the individual organization incurring the cost. When the A/P vouchers are posted, the liability is credited to an account for the corporate organization. An intercompany payable must be recorded for the incurring organization and an intercompany receivable recorded for the corporate organization to keep the individual organization's financial statements in balance.
In Timesheets, labor is debited to individual organizations performing the work on a project. However, during the posting, the accrued salaries are credited to the employees' respective home organizations. Intercompany payables must be recorded for the performing organizations and intercompany receivables recorded for the home organization of the employees, to balance the various organizations' financial statements.
In Cash Receipts, cash is received and debited to a corporate organization cash account. However, the owning organization of the project is credited for its Accounts Receivable. An intercompany payable must be recorded for the corporate organization and an intercompany receivable must be recorded for the project owning organization.
In Journal Entries, each period a journal entry is completed to amortize prepaid insurance. The organization that incurred the amortized cost is debited, but the organization to which the prepaid account belongs is credited. The incurring organization must record an intercompany payable; the amortizing organization must record an intercompany receivable.
After these intercompany transactions, you cannot print balanced financial statements by separate organization unless you make the necessary intercompany entries. The financial statements that include all organizations will balance, of course, because they include all transactions. Therefore, you should view the intercompany transactions solely as a financial statement adjustment.
The Create/Delete Intercompany Receivables screen calculates the amount of each organization's receivable or payable and includes these amounts on a journal entry. After posting this journal entry, you can print financial statements that balance by organization.
The Post Intercompany Receivables process will post down only to the Balance Sheet Level specified in the Define Org Structures screen; it will not post to the lower levels.
Do not create the Intercompany Receivable journal entry until the end of the accounting period, when all transactions have been entered and posted. Any postings that occur after the Intercompany Receivable is created and posted may contain intercompany transactions, and thus cause an imbalance in the organizational financial statements.
In the Define Org Structures screen, you must designate the Due From and Due To accounts for each top-level organization. These accounts will serve as the receivable and payable accounts, respectively, in the intercompany process. You may want to locate these accounts in the equity section of your primary balance sheet to keep assets and liabilities from being overstated.
You can either create or delete intercompany entries in the Create/Delete Intercompany Receivables screen. You must specify the fiscal year and period for which you wish to calculate the Intercompany Receivable journal entry. Because financial statements are generated only at the period frequency level, a subperiod selection is not available.
You must then select the Journals and Journal Sequences in the Create/Delete Intercompany Receivables screen. The journals are the various sources, such as Labor Distribution, Accounts Payable Vouchers, Cash Disbursements, Cash Receipts, etc., that are used to post your transactions. Normally, you would select all journals to ensure a complete intercompany transfer, but there may be times, such as after a last-minute posting, where you may want to select only one journal. The journal sequences are the numbers assigned to the individual posting processes that have been executed for each journal for each period. Normally, you would select all journal sequences, but, again, there may be a partial transfer that may involve only one posting sequence. If you plan to create Intercompany Receivable journal entries for specific sources and posting sequences, you should use the original posting journals for reference, so that your selection is correct. Not all journals will be evaluated in the Intercompany Receivable process. Some journals - for example, the Sales Journal, the Billing Journal, and the Project Allocation Journal - will not involve intercompany transactions and will not be included in the process.
After ensuring all selections are correct, select the Process Intercompany Receivables button on the toolbar to generate the journal entry. At the conclusion of the process, a message indicating the number of the journal entry created will be displayed. If you want to cancel the journal entry before it is created, select the Cancel pushbutton.
You can review the resulting journal entry before posting it to the general ledger by printing the Print Intercompany Receivable Edit Report. If the entry is incorrect, you must delete it in the Create/Delete Intercompany Receivables screen, and then recreate it in the same screen. You cannot edit the entry at the transaction level, as there should not be a requirement to delete a specific timesheet or voucher from the calculation process. If you are deleting an Intercompany Receivable journal entry, you must make the same selections that were chosen when the original entry was created.
If the entry is correct, you can post it to the general ledger in the Post Intercompany Receivables screen. Intercompany Receivable journal entries post to the General Ledger at the summary level. In other words, the entries are summarized and posted at the account/organization level with no transaction level detail.
After you post the Intercompany Receivable journal entries, you can print the financial statements by organization.