UK Recharge Accounting - Help/Advice needed

[Mus_b]

Hi,

I currently work in finance where I am processing intercompany recharges. I need some advice and was hoping fellow professionals could help me out.

Currently, the company I work for (lets call it Company A) receives invoices which may have costs that relate to Company A and an intercompany entity (lets call it Company B).

Due to location and ease of payments, Company A will make the payment to the supplier. so currently the double entry we are doing is
CR - Vendor in Comp A's books
DR P&L expense A/C in Comp A

then recharge and raise a sales invoice to Company B
DR - AR in Comp A
CR - Same P&L Expense used above to offset the expense to make zero. - Company B will then process the intercompany invoice in their own books.

so cut a long story short, i have three questions.

1) is the above process correct?

2) would it not be easier or is it possible to create a balance sheet account in Company A's Chart of Accounts, where all costs relating to other entities are booked to this Balance Sheet account, and on a monthly/quarterly basis, Company A recharges everything that is in this balance sheet account to Company B or any other companies that the cost relates to. this way, I know that my balance sheet account should always be zero once the invoice has been issued

3) in terms of sales invoices / revenue etc, does income from recharges classify as non op income?

Thanks and i look forward to seeing replies / suggestions.

 

[Fidget]

1) Your process is fine.
2) You could, but in my experience, having a single account as a holding place for items to be farmed out elsewhere is storing up trouble with reconciling it further down the line.
3) It's not income - it's just the cash back for the recharge.

 

[Mus_b]

1) Your process is fine.
2) You could, but in my experience, having a single account as a holding place for items to be farmed out elsewhere is storing up trouble with reconciling it further down the line.
3) It's not income - it's just the cash back for the recharge.

Hi,

thanks a lot for the reply. appreciate it. Regarding 2) - the process is quite manual now, so its hard tracking what to recharge and not, in case we forget. but having a seperate account, if there is an amount in there, its easily tracked?

how would you track recharges?
Thanks

 

[Fidget]

We use manual schedules for them as well. They've mainly been for things agreed in advance so tracking them has been quite straightforward, and the process is much the same as yours, although it's generally not a full invoice being recharged, just the share of it.

I do get your point re having a single separate account, but just in my experience accounts like that are a good idea in theory, but they tend to get messy in practice.

Nothing stopping you giving it a go though to see if it works for you.