The discussion until now has dealt with issues and returns within the same company or intracompany transactions. The NCAS also allows intercompany transactions between one agencys warehouse and consumers in another warehouse or consumers in the same agency using funds from a different company. Intercompany issues and returns can be direct or via usage orders.

Accounting for Intercompany Issues

The following accounting entries are generated for intercompany usage order issues:

• When the usage order is created

When the customer creates a usage order, the NCAS verifies that the requesting company has enough funds to cover the transaction. If the requesting company has enough funds, the NCAS encumbers funds for the transaction. For the requesting company, the Encumbrance (83XXXX) account is debited and the Reserve for Encumbrance (830000) account is credited. As with intracompany transactions, the amount encumbered is the quantity ordered multiplied by the average cost of the item at the time that the order was placed.
 

• When the order is picked and posted

Picking and posting the order adjusts the item balances in the Inventory module for the issuing warehouses company. No accounting entries are generated at this stage of the process.

• When the order is shipped

When the order is recorded as shipped in the NCAS, the encumbrance entry for the requesting warehouse is reversed. The Reserve for Encumbrance account is debited and the Encumbrance account is credited. The encumbrance reversal amount is the quantity shipped multiplied by the average cost of the item (plus any applicable storage overhead) at the time of order.

In addition to the encumbrance reversal, the issuing companys asset account is decreased and the requesting company is expensed for the transaction. (Refer to the Order Shipment/Direct Issues (Intercompany) transaction in the Accounting Activities Table.) Within the issuing companys group account for that item, the Reserve for Inventory offset account (event ID A020) is debited and the Inventory account (event ID A010) is credited. If storage overhead is applied to the item, then the Storage Overhead account (event ID A060) is also credited. In addition, because this is an intercompany transaction, an Intercompany Receivable account (event ID A070) is debited and a Revenue account (event ID A045) is credited.

Note: The Intercompany Receivable account is associated with event ID A070. If a location group account exists for the issuing company, the location company/center will override the default from event ID A070. In addition, if an account is associated with event ID E070, this information will override the location group account defaults.

Within the requesting companys group account for the item, a Intercompany Usage Expense account (event ID A210) or a specified expense account is debited and an Intercompany Payable account (event ID E080, overridden by anything associated with event ID A220) is credited.

Note: As explained in the Accounting for Internal Replenishment and Transfers topic, positions three through six of the Intercompany Payable and Intercompany Receivable accounts contain the due to and due from company numbers respectively.

The expense entries for an intercompany transaction will be made against 53XXXX accounts. The customers company is not consuming something it already owns but is using its funds to purchase inventory from the issuing warehouses company.

The transaction amount for all the entries generated at the time of shipping (except to the Inventory and Storage Overhead accounts) is the quantity shipped multiplied by the issuing cost of the item (average cost plus any applicable storage overhead) at the time of shipping. The transaction amount for the Inventory account is the quantity shipped multiplied by the average cost of the item (excluding storage overhead) at the time of shipment. The transaction amount for the Storage Overhead account is the quantity shipped multiplied by the storage overhead per unit. The GL effective date for inventory issue transactions is the date that the inventory is shipped to the customer.
 

• When cash is transferred between the two companies

When cash is transferred from the requesting company to the issuing company, the receivable and payable transactions are reversed. For the issuing company, the Cash account is debited and the Intercompany Receivable account (event ID A070) is credited. For the requesting company, the Intercompany Payable account (event ID A080 overridden by A220) is debited and the Cash account is credited.

For example, a customer from another company within your agency ordered seven tubes of ointment. The issuing cost of the ointment at the time of order and shipment was $2.16 per tube (average cost of $2.06 per tube plus a storage overhead of $0.10 per tube). The group account for burn ointment is XXMEDICAL. The accounting entries generated for these transactions are:

 

(For the customer's company)	Debit	Credit
AT ORDER TIME:
Encumbrance	15.12
Reserve for Encumbrance		15.12
AT SHIPMENT TIME:
Reserve for Encumbrance	15.12
Encumbrance		15.12
Intercompany Usage Expense (XXMEDICAL)	15.12
Intercompany Payable (XXMEDICAL)		15.12
WHEN CASH IS TRANSFERRED:
Intercompany Payable (XXMEDICAL)	15.12
Cash		15.12
(For warehouse XXTRN3's Company)
AT SHIPMENT TIME:
Reserve for Inventory (XXMEDICAL)	15.12
Inventory (XXMEDICAL)		14.42
Storage Overhead (XXMEDICAL)		0.70
Intercompany Receivable (XXMEDICAL)	15.12
Revenue (XXMEDICAL)		15.12
WHEN CASH IS TRANSFERRED:
Cash	15.12
Intercompany Receivable (XXMEDICAL)		15.12

As with intracompany usage order and direct issues, intercompany direct issues impact the asset and expense accounts in the same way as intercompany usage order issues. Again, the key difference between intercompany direct and usage order issues is that funds are not encumbered in the case of intercompany direct issues.

Accounting for Intercompany Returns

When an intercompany return occurs, the system generates GL entries to reverse the expense for the requesting company and to add the item back to the inventory asset account for the issuing warehouses company. (Refer to the Order Returns/Direct Returns (Intercompany) transaction in the Accounting Activities Table.)

For the issuing warehouses company, the Inventory account (event ID A010) is debited and the Reserve for Inventory account (event ID A020) is credited. If storage overhead is applied to the item then the Storage Overhead account (event ID A060) is also debited. The Revenue account (event ID A045) is debited and the Intercompany Payable account (event ID E080, overridden by anything associated with event ID A220) is credited. For the customers company, the Intercompany Receivable account (event ID A070) is debited and the Intercompany Usage Expense account (event ID A210) or the 53 expense account specified by the customer at the time of issue is credited.

The transaction amount for intercompany returns is the quantity returned and the average cost applicable to the item. In the case of intercompany usage order returns, the default average cost applied to the item is the average cost of the item at the time of issue. For an intercompany direct return, the default average cost applied to the item is the average cost of the item at the time of the return. The default average cost applied to the return can be overridden in both cases.