Intercompany Income & Expenses as Asset Balance Sheet

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#1
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9
Joined:
13-Feb-2023 9:39am
Location:
Miami, Miami-Dade, Florida, USA
Good afternoon colleagues. I have an issue I need clarification on an account that appears on the balance sheet as an asset.

Company One
Partnership
Files 1065
Date Business Started 1/1/2015
K1 issued to company two below at 100%

Company Two
LLC created in 2014.
Scorp status granted for LLC 2015
LLC has been filing 1120S since 2015.
One K1 is issued to 80% shareholder
One k1 is issued to 20% shareholder

Description
Balance sheet on company two has an account called intercompany asset from company one, where they show that company one owes them x amount and its listed as an asset.
When I go through the details it shows that company two lends company one x amount then company one pays company two x amount back and forth.
When I asked why it was not a loan the response was that it was an intercompany back and forth and the previous CPA said it was fine
They are not related.
They are not consolidated returns.
Company one does not control company two, although same owners/shareholders.

Questions
1. If you take money from one company to give another company to pay bills, is this an asset or loan?
2. If the companies are not related, what would this account be? Asset? Loan?
3. How would you journal enter this money going back and forth between companies?

I do not believe that this account is an asset where one company pays the bills of another company, the other company pays back a few dollars, and the lending company has a huge debt that the other company owes.

Any suggestions?
 

#2
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6006
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22-Apr-2014 3:06pm
Location:
WA State
Are you saying the 1065 only shows one owner?
If so, the 1065 filing shouldn't exist.
As for the intercompany accounts, if one is fully owned by the other, just run the transfers through equity and dispense with the loan fiction.
~Captcook
 

#3
rkrcpa  
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133
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22-Apr-2014 11:46am
Location:
Southeastern PA
Are you getting hung up on the title of the account or the activity? To me, it sounds like a fairly typical arrangement between related companies.

I prefer to use account titles that clearly reflect the nature of the account, generally "Due to/from Company One".

As noted above, is Company One truly a partnership?
 

#4
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9
Joined:
13-Feb-2023 9:39am
Location:
Miami, Miami-Dade, Florida, USA
CaptCook wrote:Are you saying the 1065 only shows one owner?
If so, the 1065 filing shouldn't exist.
As for the intercompany accounts, if one is fully owned by the other, just run the transfers through equity and dispense with the loan fiction.


Thak you.
 

#5
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9
Joined:
13-Feb-2023 9:39am
Location:
Miami, Miami-Dade, Florida, USA
rkrcpa wrote:Are you getting hung up on the title of the account or the activity? To me, it sounds like a fairly typical arrangement between related companies.

I prefer to use account titles that clearly reflect the nature of the account, generally "Due to/from Company One".

As noted above, is Company One truly a partnership?


No, I was hung up on whether its an asset or equity. Thank you.
 


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