3 Intercompany Accounting Mistakes That Cost Operators at Tax Time

If you operate multiple entities, you're almost certainly doing some amount of intercompany accounting — even if you don't call it that. Shared office space, a management fee from your holding company, a loan from one entity to another to cover payroll.

Mistake 1: Treating intercompany loans as income

When Entity A loans $50,000 to Entity B, the $50,000 is NOT income to Entity B — it's a liability. And it's NOT an expense to Entity A — it's an asset (a receivable). The correct treatment: Entity A books a Note Receivable (asset). Entity B books a Note Payable (liability). FIRMA auto-classifies intercompany transactions with a flag so this routing happens correctly by default.

Mistake 2: No elimination journal at consolidation

When you consolidate multiple entities, intercompany transactions need to be eliminated — otherwise you're double-counting. If Entity A charges Entity B a $10,000 management fee, both should disappear in the consolidated view. Most operators who combine P&Ls in spreadsheets don't do this step. FIRMA does this automatically when it detects intercompany-flagged transactions.

Mistake 3: Shared employees booked to only one entity

If a staff member works across two entities, their salary needs to be allocated proportionally to each entity. The correct treatment: Set up a cost-sharing agreement. The paying entity invoices the others for their share. These are intercompany transactions and get eliminated at consolidation.

How to audit your intercompany accounting now

• Pull up every transaction in the last 12 months that was "to" or "from" another entity you own
• Confirm loans are on the balance sheet (not P&L) on both sides
• Confirm management fees net to zero in consolidation
• Confirm shared employee costs are allocated, not booked 100% to one entity