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Assume that you own 2 companies, CoA and CoB. You have a debtor, DebtorA, owes CoA $1,000 and CoB $2,000. Instead of making payment to both CoA and CoB individually, DebtorA made payment of $3,000 to CoA and indicated that it was paying for the outstanding invoices of both companies.
It is common for small business owners to pay “you” for all the outstanding to your companies as they assume that you will allocate the fund accordingly (and assuming that all money which you received are “your” money, although legally they are separate entities).
How are you going to record the payments into both company files?
In CoA company file:
The money, $3,000, has physically banked into the CoA’s bank account. You have to record it and knock off the outstanding invoice, $1,000, and also has to show as an amount owing to CoB (although CoB is also your company). In this case, you have to break the payment into 2 receipts.
Receipt 1:
Use the Receipt function to receive the $1,000 into the Bank and knock off the outstanding invoice owing by DebtorA.
Receipt 2:
Use the Receipt function to receive the $2,000 into the Bank and at the Account tab, select the “Amount owes to the related company” account. The “Amount owes to the related company” account is a current liability account. Once transaction recorded it will show in the Balance Sheet report at the Current Liabilities section.
Tips: You can set a different receipt number (Transaction.OurRef) with a same Cheque number (Transaction.TheirRef) for both receipts. This way will help to identify the transactions when doing the bank reconciliation.
In CoB company file:
Use the Receipt function to record the $2,000 into a Contra account (Use Bank account type for the Contra account so it can be used in the Receipt function) and knock off the outstanding invoice owing by DebtorA.
Next, use the Journal function to reclassify the $2,000 to the “Amount due by related company” account. The “Amount due by related company” account is a Current Asset account. You should debit “Amount due by related company” account and credit the “Contra” account.
When CoA is ready to pay CoB, use the Payment function to issue a payment to Co B with the “Amount owe to the related company” account. And at the CoB company file, use a Receipt function to record the payment received into the bank with the “Amount due by related company” account at the account tab.
A physical payment from CoA to CoB is needed unless there are other outstanding between the two companies which you later contra them off with a journal transaction.