No bank account - Related entity pays

by Cee
(Georgia)

Hi

I have a situation where one entitiy has no bank account, however another company (owned by same person), pays the first entity's bills. There is no receivable/payable to set up, because the company paying is actually using the first company's funds to pay the bill. The funds are electronically deposited to the paying company's account.

How do I account for the payment of expenses on each company's books. For the company with no bank account, there is no bank account to debit, so which account should I use in its place? For the company with the bank account and directly paying bills, the only net effect is the nominal charge to carry out this transaction.

Cee, you setup inter-company accounts to track the inter-company transactions.

Setup a current liability account called "Due to/from HASBANK" in NOBANK Co. Run all transactions with HASBANK Co. through this account.

HASBANK Co. should setup a current asset account called "Due to/from NOBANK". Run all transactions with NOBANK Co. through this account.

At each year-end (or more frequently if the volume of transactions is high), you should reconcile these two accounts to ensure both companies have captured all inter-company transactions. It is not unusual to have one company miss the recording of some transactions. Reconciling catches these types of errors.