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richardgreen
richardgreen
August 10, 2017
Solved

How to enter payments taken out of the second company to the correct company where AmEx card is connected?

  • August 10, 2017
  • 6 replies
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I have a client (Company A) who has an American Express (AmEx) credit card setup in their QB company file.

 

Since the beginning, when the Company A company file was created,  the owner has been making payments on the AmEx card using their Company A business checking account.

 

The owner of Company A recently opened another business (Company B).

 

In June the owner made the AmEx payment from the Company B bank account instead of from the Company A bank account because she didn’t have enough money in the Company A bank account.

 

Going forward the owner said the source of the AmEx payment will depend on the month, based on which account has the funds to pay so this scenario could happen again.

 

Since the AmEx account is set-up in Company A's QB company file how would I make the entries in Company A and B’s QB files when the payment comes from a company file that doesn’t have the AmEx card account in it?

 

Company A and Company B have separate checking accounts.   

 

The client uses QuickBooks Pro 2011.

 

NOTE: I know one solution is to  suggest when the owner knows she wants to pay the AmEx card with Company B's checking account she  writes a check to Company A for the payment amount, deposits the check in Company A and makes the payment from Comany A's checking account. Since this involves extra work for her she may not want to do this, soas an alterantive I'm looking to see if there is an easy way to make the entries in both company files.

 

 

(Title has been edited by moderator for clarity)

    Best answer by vpcontroller

    I am answering original posting (OP) question.

     

    "I know one solution is to suggest when the owner knows she wants to pay the AmEx card with Company B's checking account she writes a check to Company A for the payment amount, deposits the check in Company A and makes the payment from Company A's checking account."

     

    I agree. This is indeed a perfect solution that will show an arm's length transactions between two companies.

     

    "Since this involves extra work for her she may not want to do this, so as an alternative ... an easy way to make the entries in both company files."

     

    If I were to do it I would just write a simple journal entry. Other ways to do it in QuickBooks as well.

       Company A: Debit AE account; Credit current liability account.
       Company B: Debit current assets account; Credit bank account.

     

    (This example entry is when company B making payment (full or partial) directly to AmEx on Company A credit card. There is no actual cash transfer between Company A & B at this time. On company A's books, it will clear credit card balance but will show due to Company B as Other Current Liabilities type account. On Company B's books, it will show Due from Company A as Other Current Assets type account).

     

    At some point, you will need to clear these intercompany balance sheet accounts.

     

    There are other alternatives (already addressed here) but as you said: "she may not want to do it."

    6 replies

    SteveChase
    SteveChase
    August 10, 2017

    Is Company A and Company B using the same checking account? If they are you probably you mihgt suggest to the business owner consider that they link accounts. Once the accounts are linked up the business owner could login with the same username and pw to see both A and B account files and make electronic transfers rather than handwritten checks. They could also make transfers easily from their smart phone app on the go as well. 

     

     

    richardgreen
    richardgreenAuthor
    August 10, 2017

    Thanks for the response Steve. Company A and Company B have separate checking accounts. 

    T
    Teri11_2
    August 10, 2017

    I would highly recommend that they have two separate credit cards for the separate companies.  Just like it is imperative to keep business separate from personal expenses, company expenses should also be separated. Co-mingling funds between companies is almost sure to get messy and have to say that Company A should not be spending money they don't have. This is what I would tell my client anyway.

      SteveChase
      SteveChase
      August 10, 2017

      I concur with @Teri11_2 with the easiest way to track all of this is keep separate credit cards for Company A and B so it can all get tracked in the right place.

        Rustler
        Rustler
        August 10, 2017

        @ Richard

        If the companies are both sole proprietorships or partnerships, the withdrawal of funds from company B would be an equity draw.  In company A show the influx as equity investment deposited to a cash account, and pay the bill from the cash account.

          T
          Teri11_2
          August 10, 2017

          Sounds like a payment was already made directly from the other company's checking account vs. doing a transfer of cash between companies.  Again, I would suggest separate credit cards for each company here.

           

          Wouldn't an "Equity Draw", as you call it, imply payment to Owner/Shareholder vs. another business entity?

          So then does one company have partial ownership of the other company based on their "investment" in it?

           

           

           

          Rustler
          Rustler
          August 11, 2017

          @ Teri

          Wouldn't an "Equity Draw", as you call it, imply payment to Owner/Shareholder vs. another business entity?

          So then does one company have partial ownership of the other company based on their "investment" in it?

           

          in the OP, the owner of both companies is the same person. He, the owner, takes money from one company to pay the expense of another. The act of taking money is a draw, and putting it in another company he owns is an investment.

           

          No there is no company ownership of one with another

            vpcontroller
            vpcontrollerAnswer
            August 10, 2017

            I am answering original posting (OP) question.

             

            "I know one solution is to suggest when the owner knows she wants to pay the AmEx card with Company B's checking account she writes a check to Company A for the payment amount, deposits the check in Company A and makes the payment from Company A's checking account."

             

            I agree. This is indeed a perfect solution that will show an arm's length transactions between two companies.

             

            "Since this involves extra work for her she may not want to do this, so as an alternative ... an easy way to make the entries in both company files."

             

            If I were to do it I would just write a simple journal entry. Other ways to do it in QuickBooks as well.

               Company A: Debit AE account; Credit current liability account.
               Company B: Debit current assets account; Credit bank account.

             

            (This example entry is when company B making payment (full or partial) directly to AmEx on Company A credit card. There is no actual cash transfer between Company A & B at this time. On company A's books, it will clear credit card balance but will show due to Company B as Other Current Liabilities type account. On Company B's books, it will show Due from Company A as Other Current Assets type account).

             

            At some point, you will need to clear these intercompany balance sheet accounts.

             

            There are other alternatives (already addressed here) but as you said: "she may not want to do it."

              T
              Teri11_2
              August 10, 2017

              Questions on your suggestion that I copied below:

               

              If I were to do it I would just write simple journal entries each month.
                Company A: Debit AE account; Credit current liability account.
                Company B: Debit current assets account; Credit bank account.

               

              Co A:  Isn't AE account already a current liability account?  So what are you suggesting for the second one?

              Co B:  We know Bank account is a current asset account.  So what are you suggesting for the second same?

               

              Sometimes you jut have to explain to the biz owner what is required and they should respect your advice.

                N
                ndfbroadwick
                August 11, 2017

                I have a very similar situation.  The owner has 2 companies and each has it's own separate company QBs account.  Company A is the Amex cardholder.  The owner used the Amex to pay for some Company B expenses.  For simplicity, the credit card bill total was $1000.  Company A total charges was $700 and Company B total charges was $300.  Instead of Company B reimburse Company A, Company B made a direct payment of $300 to Amex.  And Company A paid its $700 to Amex.  How do I record the entries properly in each company's QBs account?  

                -  Do I enter all of the credit card charges including Company B's incurred expenses in Company A account?  If so, what is the appropriate account type/name for entering Company B expenses?

                -  How do I make sure of clearing the balance sheet for each company account?

                Thank you in advance for your help.

                qbteachmt
                qbteachmt
                August 11, 2017

                I don't see where anyone addressed the Most Important consideration = Commingling.

                 

                "the source of the AmEx payment will depend on the month, based on which account has the funds to pay so this scenario could happen again."

                 

                I recommend you Stop Paying directly from a company that is not the Responsible party for that Debt.

                 

                "Since this involves extra work for her she may not want to do this,"

                 

                Explain that this opens Both Businesses to scrutiny by the IRS and by any law firm, as well, that wants to "look at the books" and/or Sue. If this person does not want to Respect any separation between these two business, or between Self and Business, no one else respects that, either.

                 

                "soas an alterantive I'm looking to see if there is an easy way to make the entries in both company files."

                 

                Commingling = you didn't segregate the entries, even if you Tracked them correctly, because paying Amex directly from the entity who is not the Responsible party = Commingled. You want to Move Funds between the entities in anticipation of that shortfall, then let each make their Own Payments.

                 

                And nothing here is a Debit=Credit or JE. In QB, you have Tools = an Interface. If this is Desktop, that is Banking menu > Enter Credit Card Charge. For QBO, it is an expense from the Credit card. For Reductions, that is Credit Card Credit, or Return. Or, from Checking, the Credit Card account is the "expense" entry.

                 

                If you insist that Company A pays Company's B's debt directly as Loaned to them, that still is Credit Card Credit for B, putting Liabilty as the "expense" reason. And Company A's check "expense" is Other Asset.

                 

                No JE should be used.

                 

                 

                 

                 

                T
                Teri11_2
                August 11, 2017

                Yes, co-mingling (between two different companies) is exactly what they are doing and should not be and that is what needs to be explained to the owner in my opinion in order to stop these bad accounting habits.

                 

                As mentioned, I recommended they should have two separate credit cards, but if for some reason the owner refuses to do, next best thing is to not have one company make payment on other company AMEX.

                 

                Transferring money between companies should not be handled this way to begin with, it should be through proper accounting taking money from one company as draw and investing in the other company or a loan.

                 

                Yes, no JE's here, but I believe in explaining what they should expect to see as results on their books even if using the QB functions, otherwise how will they ever know what is right or wrong. 

                 

                QBTeachment, I think you and I do things differently, I teach clients how to do their own accounting vs. doing it for them, so they can be independent and only need to contact me fo help on new items.

                N
                ndfbroadwick
                August 11, 2017

                Teri and QBTeachmt, thank you both for your help.  My situation happened inadvertently and won't happen again!   As a follow-up question, Teri pointed out the logic to follow/entries, however can you provide the actual steps to properly record the entries?  I'm using QB Desktop.  As QBTeachmt mentioned, if using Desktop, then go to Banking menu > enter Credit Card Charge...this would be my first step in Company A.  Then how do I proceed?

                 

                 

                 

                FinfrockTax
                FinfrockTax
                August 14, 2017
                For both scenarios, I would suggest setting up a receivable in Company A from Company B, and a payable in Company B to Company A.
                 
                For accrual-basis accounting:
                • Step 1 - When the expenses are incurred (applies at all times):
                  • Company A would post debits for their own expenses, a debit to a receivable account from Company B for its expenses, and a credit for the full amount due to the cc liability account. Company B would post debits for its own expenses, and a credit to the payable to Company A. 
                • Step 2 - When the payment is made (choose one): 
                  • If Company B makes the payment directly to the cc company, Company B books a credit to cash and debit to the payable to Company A. Company A would post a debit to their cc liability account and a credit to their receivable from Company B.
                  • If Company B makes the payment directly to Company A, Company B books a credit to cash and debit to the payable to Company A. Company A would book a debit to cash and a credit to the receivable from Company B.
                  • If Company A makes a payment direct to the cc company on behalf of Company B, they would book the payment as they normally would... a debit to the cc liability and a credit to cash, as long as the receivable has already been booked when the expenses were incurred.

                For cash-basis accounting (choose one):

                • If Company B makes the payment directly to the CC company, Company B books a credit to cash and debit to its expense accounts. Company A would post a debit for its own expenses and a credit to cash for its own payment made direct to the CC company.
                • If Company B makes the payment directly to Company A, Company B books a debit to its expenses and a credit to cash. Company A books a debit to cash and a credit to a receivable from Company B.
                • If Company A makes a payment on behalf of Company B to the CC company, it would book a credit to cash, debit to its expenses, and a debit to the receivable from Company B. 

                 

                In the end, the receivable and payable accounts between both companies need to match. If they are ever out of balance, you know that one of the companies missed recording a transaction. 

                 
                This can get complicated to track if there are partial payments made and payments made on behalf of the other company each month, but the entries above would resolve both scenarios. As long as cc statements and receipts are kept to support business expenses for both companies, and there is a documented agreement between the companies to provide detail of the arrangement in an audit, you should be okay. It's not advisable to have companies sharing accounts like this because of the high risk of error, but it happens all of the time, especially in small businesses that are owned by a single individual.
                 
                All of the above debits/credits can be accomplished using various QB functions, or with JE's. In the end, it all provides the same results, but you can get the entries done faster through JE's rather than trying to do multiple functions in QB. Any accountant that knows QB and accounting should know how to do it both ways if they are handling company books and charging for their services. 
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