We are a company with 2 separate businesses with separate bank accounts and books. Company A got a bank loan and then loaned it to Company B. Company B is the money maker of the 2 companies. Company B pays all of Company A's expenses and charges them of to a Due To/From BS account. At the end of the month, the CFO makes an AJE from cash to the liability loan account leaving Company B with a zero register balance (so called, writing a check to Company A for whatever in left available in Company B's register). There have been a few months that an AJE was made in the reverse. The cash never changes from one company to the other through the bank. As he puts it, it is only a paper transfer. I argue that this should not be done because there is no cash transferring hands. If he wants to pay down the loan, shouldn't he use intercompany company accounts? I cannot reconcile the bank statements because of this. Isn't cash-in, cash-in and cash-out, cash-out? Shouldn't you be able to reconcile the register to the bank statement? Is this legal?
USA AJE for cash transactions that don't happen
- Thread starter Mor
- Start date
You need to read the bank loan documents to see if the intercompany loan is legal. Many times the loan documents limit how the loan proceeds are to be used. It may be that you are not to re- lend the money. In your case, since B is the money maker I can't see that the bank would object but I don't know - so just read the loan documents.
Thank you for the reply. I will take your advice and check the loan documents. My real concern is the so called "paper" transfers of cash between the companies that never really happen. Any advice on this?