Hi, I have a qn pertaining to my Job. And its quite Complex.
Part 1: Company A has contracted with a supplier for an amount say $20,000. The same supplier had contracted services from Company B to use its vehicle for delivery. Company B is a subsidiary of Company A. And since the Supplier is an inefficient payer, Company A has decided to deduct the amount owed to Company B from the supplier's invoice to company A.
Part 2: Also company B owes Company A as Company A pays the wages of Company B's employees. So if we offset the amount company A owes to Company B for collecting the amt owed by the supplier, How to we do a jounal entry for this. We have to clear the AR and Wages Payable from Company B and also settle the AP/ and money paid for Company B's Employees. Is it very complex or is this normal in the working world as I've just started my job in the last year of my uni.

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Originally Posted by Gregorius

Hi, I have a qn pertaining to my Job. And its quite Complex.
Part 1: Company A has contracted with a supplier for an amount say $20,000. The same supplier had contracted services from Company B to use its vehicle for delivery. Company B is a subsidary of Company A. And since the Supplier is an inefficient payer, Company A has decided to deduct the amount owed to Company B from the supplier's invoice to company A.
Part 2: Also company B owes Company A as Company A pays the wages of Company B's employees. So if we offset the amount company A owes to Company B for collecting the amt owed by the supplier, How to we do a jounal entry for this. We have to clear the AR and Wages Payable from Company B and also settle the AP/ and money paid for Company B's Employees. Is it very complex or is this normal in the working world as ive just started my job in the last year of my uni.

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How these transactions are usually handled is with intercompany accounts or suspense accounts. In other words the transactions are passed through both companies in the same way

Company B passes a debit to company A for the amount it wants to collect crediting accounts receivable. Company A debits the suppliers account in accounts payable and credits the company B suspense account
The suspense account in Company A is debited for the wages paid and cash credited. In company B the suspense account is credited for the wages and the expense account debited
The intercompany accounts are reconciled and settled regularly to facilitate this process one company may maintain the account in accounts receivable the other in accounts payable or they may exist in a section of the general ledger depending upon how large the group of companies is