Intercompany Journal Entry

Definition

An intercompany journal entry is a type of accounting transaction used to transfer funds between two separate companies within the same corporate group. This type of journal entry is used to record the transfer of funds between two companies, and is typically used to record the transfer of goods or services between two companies.

Example

For example, if Company A is a subsidiary of Company B, and Company A is providing services to Company B, an intercompany journal entry would be used to record the transfer of funds from Company B to Company A. The journal entry would include a debit to Company B's accounts payable account, and a credit to Company A's accounts receivable account.

Why it Matters

Intercompany journal entries are important for businesses to accurately record the transfer of funds between two companies. This type of journal entry ensures that the financial statements of both companies are accurate and up to date. Additionally, intercompany journal entries can help to ensure that the financial statements of both companies are in compliance with Generally Accepted Accounting Principles (GAAP). By accurately recording the transfer of funds between two companies, businesses can ensure that their financial statements are accurate and in compliance with GAAP.