The four transactions almost everyone has
Rent to your own property LLC is the most common. The building sits in one LLC, the operating company pays it rent, and the rent is income in one file and an expense in the other.
A management fee is a charge from a holding or parent company to an operating company for services the parent provides, usually the owner's time, bookkeeping or shared staff. It moves profit up to the parent.
One company paying another's bills is the accidental one. A vendor has the wrong entity on file, or the operating account is short and the property LLC covers payroll. An owner asked the QuickBooks Community in October 2020 how to record one business covering another's expenses, and the thread never got a definitive answer. The extreme case is two companies run through one bank account, where every deposit and payment is an intercompany transaction nobody records; the unwind is in one company paying another's bills.
Loans between your companies are what the first three become when nobody settles up. Money that moved and was not repaid is a loan, whether or not anyone wrote it down.
A due to/due from account is a pair of balance sheet accounts that track money one of your companies owes another. Due from is an asset in the company that is owed. Due to is a liability in the company that owes. The advice accountants gave on a Proformative thread in May 2015 to one owner with several LLCs still holds: use due to/due from, document any loan that persists, and settle up.
What each one looks like in QuickBooks Online
Take an owner with three files. Coastal Ops LLC runs the business. Coastal Property LLC owns the building and charges Ops $8,000 a month in rent. Coastal Holdings LLC sits on top and charges Ops a $5,000 monthly management fee. In March, a $12,000 workers' comp premium for Ops was paid from the Holdings bank account because the insurer had the wrong entity on file. The pattern is the same every time: the company that is owed records a due from, and the company that owes records a due to.
| File | What happened | Debit | Credit |
|---|---|---|---|
| Property | Rent charged to Ops | Due from Ops $8,000 | Rent income $8,000 |
| Ops | Rent owed to Property | Rent expense $8,000 | Due to Property $8,000 |
| Holdings | Fee charged to Ops | Due from Ops $5,000 | Management fee income $5,000 |
| Ops | Fee owed to Holdings | Management fee expense $5,000 | Due to Holdings $5,000 |
| Holdings | Paid Ops' premium | Due from Ops $12,000 | Bank $12,000 |
| Ops | Premium paid on its behalf | Insurance expense $12,000 | Due to Holdings $12,000 |
When Ops pays Property the $8,000, both due balances go to zero. If at month end Ops has paid the rent but not the fee or the premium, Ops shows $17,000 due to Holdings and Holdings shows $17,000 due from Ops. Those two numbers should always match. When they do not, one bookkeeper has recorded something the other has not.
The mistake we see most is booking the $12,000 in Holdings as insurance expense, because that is what the invoice said. Holdings has then paid for insurance it does not have, Ops shows no premium, and the $12,000 has quietly become a gift.
Why adding the P&Ls together counts twice
Say in March Ops billed customers $241,600 and had expenses of $219,300, including the rent, the fee and the premium, for a profit of $22,300. Property took in $8,000 against $5,650 of mortgage interest, tax and insurance, for $2,350. Holdings took in $5,000 against $2,900 of professional fees, for $2,100.
Add the three P&Ls and combined revenue is $254,600. Only $241,600 of that came from a customer. The other $13,000 is money Ops paid to companies you also own, counted once as an expense in Ops and again as income in Property and Holdings. Over a year that is $156,000 of revenue that was never a sale. Profit is $26,750 either way, which is why the combined spreadsheet survives. Margins, growth and anything a lender reads from the top line are off by that amount.
Intuit's ERP blog cites a BlackLine finding that 99% of companies struggle with intercompany accounting. That covers large companies with dedicated staff. We have no number for owners with three LLCs and an outside bookkeeper, and would expect it to be worse, because nobody in that setup owns the reconciliation.
What an elimination removes, and what it leaves alone
An intercompany elimination is the adjustment that removes an intercompany transaction from the consolidated statements, so that income in one company cancels the matching expense in the other, and a due from in one company cancels the due to in the other.
In the example, elimination removes $8,000 of rent income and rent expense, $5,000 of fee income and fee expense, and the $17,000 due to and due from. Consolidated revenue becomes $241,600, expenses $214,850, profit $26,750, and the intercompany balances disappear.
It leaves the $12,000 premium alone. That was a real cost paid to an outside insurer and belongs in consolidated expenses; only the fact that Holdings paid it for Ops gets canceled. Each company's own books and tax return stay as they were.
Common advice is to keep things simple by not charging rent or fees between your own companies at all. We would disagree. The rent is what makes the property LLC a real business with real income, which is what the lender and the tax return expect, and skipping it does not remove the intercompany problem. The money still moves, as an undocumented loan. Book them properly, ask your CPA about the amounts, and let the elimination do the roll-up.
What elimination cannot tell you is whether the management fee is the right size, whether the loan to the weak company will ever be repaid, or whether your bookkeeper recorded both sides. Elimination is arithmetic on whatever is in the files, and it inherits their mistakes.
Five questions for your bookkeeper, and one test
Ask first whether every file has a due to and a due from account for each other company, named consistently. Second, whether the balances net to zero across the files at the last month end, and if not, by how much. Third, who records the second side when one company pays another's bill; in most small setups the answer is nobody. Fourth, whether the balances were settled in cash last quarter or carried forward. Fifth, whether any persisting balance has a written note behind it.
Then the test. Add up the customer invoices across every file for last month and compare that with revenue on your combined report. If the combined figure is higher, the difference is intercompany income counted as a sale. Why QuickBooks does not catch this is in can QuickBooks Online consolidate multiple companies; what belongs in the parent's file is in holding company accounting in QuickBooks.
Navigator reads each QuickBooks Online file read-only and shows every company on its own and together. On the Pro plan, $499 a month for the first entity, intercompany elimination happens automatically. Any consolidated figure opens to show which company and which entry it came from, so a due from with no matching due to is visible rather than buried. Additional entities are half price; the 30-day trial needs no card.
Questions owners ask
Are intercompany transactions taxable?
Each one is real to each company's books and return. Rent your operating company pays your property LLC is income to the LLC and an expense to the company. Whether that changes what you owe depends on how each entity is taxed, which is a question for your CPA. Elimination does not undo it.
Do I need a written loan agreement between my LLCs?
When a balance between two of your companies persists past a month or two, yes. A short note stating the amount, the date, the rate if any and how it gets repaid is what a lender or buyer will ask for, and it keeps the entry a loan rather than an undocumented transfer.
What is a due to/due from account?
A pair of balance sheet accounts that track money one of your companies owes another. Due from is an asset in the company that is owed; due to is a liability in the company that owes. The two should be equal and opposite across the files. When they are not, one bookkeeper has recorded something the other has not.
Should intercompany loans carry interest?
Accountants on forums have long said a documented loan with a rate is safer than an open balance, and we agree the documentation matters most. Whether interest is required, and at what rate, turns on how the entities are taxed and whether outside partners are involved. Ask your CPA, and write down the decision.
Related
Why none of this happens inside QuickBooks is in can QuickBooks Online consolidate multiple companies. If the bills are already tangled, one company paying another's bills is the clean-up. If there is a parent above your operating companies, holding company accounting in QuickBooks covers its file.
If you would rather see your own intercompany balances than read about them, the trial connects in about fifteen minutes with no card: navigatorhq.ai.
Published . Last updated . Reviewed by a CFO on the Navigator team.