An intercompany transaction is any exchange of money, goods or services between two legal entities in the same group, such as a parent and its location LLCs. Common examples are a shared cost one entity pays for the others, a management fee, a loan between entities, and a customer payment that lands in the wrong entity's account. Each one is recorded in both sets of books, on the same date and for the same amount, usually through a due-to account in one and a due-from account in the other. The balances are then settled by transfer and checked with an intercompany reconciliation.
What is an intercompany transaction?
It is a transaction between two entities you control. To each entity's books it looks like dealing with an outside party. To the group as a whole, it is money moving from one pocket to another. That is why each one must be recorded on both sides, so the two sets of books agree and the group's totals don't count it twice.
What are the common kinds?
- Shared costs. One entity pays rent, payroll or software for several and charges each its share. See cost allocation.
- Management fees. A parent or management company charges the others for central services. See management fee.
- Loans and advances. One entity sends cash to another to cover a shortfall or fund an opening.
- Misdirected customer payments. A customer of one entity pays into another entity's Stripe or bank account.
- Transfers of assets or inventory. Equipment or supplies moved from one entity to another.
What accounts do you use?
Most groups use a pair of balance sheet accounts for each entity they deal with:
- Due from [entity], an asset, for money another entity owes you.
- Due to [entity], a liability, for money you owe another entity.
One account per counterparty makes it easy to see who owes whom. Add them to each entity's chart of accounts.
What do the entries look like?
A worked example. A customer of Phoenix LLC pays a $1,108.33 plan installment, but the payment lands in Denver LLC's Stripe account.
Step 1. Record the payment in both sets of books.
| Books | Debit | Credit |
|---|---|---|
| Denver LLC | Stripe clearing $1,108.33 | Due to Phoenix LLC $1,108.33 |
| Phoenix LLC | Due from Denver LLC $1,108.33 | Accounts receivable $1,108.33 |
Denver records the cash but not the income, because the sale is Phoenix's. Phoenix reduces the customer's balance, because the customer has paid.
Step 2. Settle by transfer.
| Books | Debit | Credit |
|---|---|---|
| Denver LLC | Due to Phoenix LLC $1,108.33 | Bank $1,108.33 |
| Phoenix LLC | Bank $1,108.33 | Due from Denver LLC $1,108.33 |
After step 2, both due accounts are back to zero. The card fee Denver paid on that payment is a separate question. Agree in advance whether Denver absorbs it or charges it to Phoenix, and record it the same way every time.
When should they be settled?
On a regular schedule that both entities' books follow, written down in advance. Unsettled balances that grow for months are hard to explain to a lender, a CPA or a buyer. Settling by real transfers also leaves a bank record that matches the entries.
Why do intercompany transactions matter for group reports?
When you add the entities together, each intercompany balance appears twice: once as a receivable in one entity and once as a payable in another. Management fees appear as income in one and expense in another. A combined report removes these pairs, called eliminations, so the group isn't shown owing itself money or earning from itself. See multi-entity accounting.
Do intercompany charges have tax effects?
They can. Charges between businesses under common control are subject to Section 482 regulations, which use an arm's length standard. How that applies to your group depends on its structure. Ask your CPA before setting fees or loan terms between entities.
General information, not accounting or tax advice.
- 26 CFR 1.482-1, Allocation of income and deductions among taxpayers (Cornell LII)
- Stripe: Multiple separate accounts
Every figure on this page was checked against these sources on Oct 6, 2026. General information, not legal or tax advice.