An intercompany transaction is possible between two warehouses in different agencies or two warehouses from the same agency but operating within separate GL companies. The following accounting entries are generated for intercompany transactions. (Refer to the Internal Replenishment (Intercompany) transaction in the Accounting Activities Table.)
When the order is created
Funds are checked in intercompany transactions. An encumbrance is created for the requesting warehouse when funds are checked. The Encumbrance (83XXXX) account is debited and the Reserve for Encumbrance (830000) account is credited for the amount of the request. The encumbrance amount is the quantity ordered multiplied by the issuing cost of the item, including any applicable storage overhead, at the time of the order.
When the order is shipped
The encumbrance generated when the order is created is reversed at the time that the items are shipped. For the requesting warehouse, the Reserve for Encumbrance is debited and the Encumbrance account is credited. The reverse encumbrance amount is the quantity shipped multiplied by the average cost, including any applicable storage overhead, of the item at time of the order.
For the following entries (except to the Inventory and Storage Overhead accounts), the transaction amount is the quantity issued from the central warehouse multiplied by the issuing cost (including storage overhead) at the time of issue. The entries to the Inventory asset account do not reflect storage overhead. The storage overhead value is reflected in a separate entry to the Storage Overhead account. The GL effective date is the date the stock items are shipped to the receiving warehouse.
The effects to the asset accounts of the two warehouses are the same as in intracompany internal replenishment. For the central warehouse, the Reserve for Inventory account (event ID A020) is debited and the Inventory asset account (event ID A010) is credited. The Storage Overhead account (event ID A060) is credited for the amount of the overhead. For the subsidiary warehouse, the Inventory asset account (event ID A010) is debited and the Reserve for Inventory account (event ID A020) is credited for the subsidiary warehouse. These transactions occur within the group accounts set up by each warehouse for that item.
For the receiving warehouse, event ID A040, the Purchases for Resale (53XXXX) account is debited and an Intercompany Payable (event ID A080) is credited. The Purchases for Resale account and the Intercompany Payable account are part of the group account established for that item.
Note: The expense entry is made against a 53XXXX account because the two warehouses operate in different companies. In effect, the subsidiary warehouse is purchasing the goods from the central warehouse.
For the issuing warehouse, an Intercompany Receivable account (event ID A070) is debited and the Revenue account (event ID A045) is credited. The Intercompany Receivable and the Revenue account are also part of the group account established for that item.
When cash is transferred between the two companies
The receivable and payable entries are reversed. For the issuing warehouse, the Cash account is debited and the Intercompany Receivable account is credited. For the receiving warehouse, the Intercompany Payable account is debited and the Cash account is credited.
Note: The numbers in positions three through six of the intercompany receivable and payable accounts represent the due-to and due-from companies. For example, the Intercompany Payable account for a transaction might be account 214201, where 4201 represents the company to which the payable is due.
For example, your warehouse (XXTRN3) has just ordered 20 tubes of ointment from warehouse XXTRN5 in your agency. XXTRN5 belongs to a different company than your warehouse. At the time of the order, the average cost is $1.90 per tube. XXTRN5 does not apply a storage overhead to the item. So far, XXTRN5 has only shipped out 10 tubes to your warehouse. At the time of shipment, the average cost is $2.00 per tube. The cash for this transaction has also been transferred to XXTRN5s company.
Warehouse XXTRN3 uses group account XXMEDICAL to account for burn ointment. Warehouse XXTRN5, which has a different company and center from warehouse XXTRN3, uses the location group account XXTRN5 to account for burn ointment transactions. In addition, XXTRN5 is the central or the issuing warehouse and your warehouse, XXTRN3, is the subsidiary or receiving warehouse. This intercompany internal replenishment order generates the following accounting entries:
| (For receiving warehouse XXTRN3) |
|
|
| Encumbrance |
38.00
|
|
| Reserve for Encumbrance |
38.00
|
The asset account for your warehouse, XXTRN3, is increased by $20.00 (the quantity shipped, 10 tubes, multiplied by the average cost of $2.00 per tube at the time of shipment). The asset account for the issuing warehouse, XXTRN5, is reduced by the corresponding amount.
For your warehouse, XXTRN3,
the purchase of ointment from another warehouse is expensed to the Purchases
for Resale account and an intercompany payable is created. For warehouse
XXTRN5, an intercompany receivable is created and a revenue account is
credited. The transaction amounts for all these accounting entries is also
$20.00 (the quantity shipped, 10 tubes, multiplied by the average cost
of $2.00 per tube at the time of shipment).
| (For receiving warehouse XXTRN3) |
|
|
| Reserve for Encumbrance |
19.00
|
|
| Encumbrance |
19.00
|
|
| Inventory (XXMEDICAL) |
20.00
|
|
| Reserve for Inventory (XXMEDICAL) |
20.00
|
|
| Purchases for Resale (XXMEDICAL) |
20.00
|
|
| Intercompany Payable (XXMEDICAL) |
20.00
|
|
| (For issuing warehouse, XXTRN5) | ||
| Reserve for Inventory (XXTRN5) |
20.00
|
|
| Inventory (XXTRN5) |
20.00
|
|
| Intercompany Receivable (XXTRN5) |
20.00
|
|
| Revenue (XXTRN5) |
20.00
|
| (For receiving warehouse XXTRN3) |
|
|
| Intercompany payable (XXMEDICAL) |
20.00
|
|
| Cash |
20.00
|
|
| (For issuing warehouse XXTRN5) | ||
| Cash |
20.00
|
|
| Intercompany Receivable (XXTRN5) |
20.00
|