Multi-Entity Bookkeeping: Intercompany Due-To/Due-From Explained

Every time money moves between your entities, it creates an intercompany due-to/due-from balance: the entity that paid records a receivable, and the entity that benefited records a payable. Both sides have to be booked, every month, and the two have to match. When they don’t, every balance sheet in the group is wrong, the K-1s carry the error to the partners’ personal returns, and nobody can produce the consolidated view a lender will eventually ask for.

We run an accounting firm and this is the single most common thing we fix in multi-entity cleanups, for real estate owners, restaurant groups, and anyone with an operating company and a property company. Here’s where the balance comes from, what it breaks, and how the monthly close keeps it at zero.

What is due-to due-from in accounting?

Two accounts that mirror each other across entities. “Due from B” in entity A’s books is an asset: B owes A money. “Due to A” in entity B’s books is a liability: B owes A money. Same transaction, seen from each side. At any point in time, A’s due-from-B balance and B’s due-to-A balance should be identical.

That’s the whole concept. The complexity is that owners create these balances constantly without knowing it, and only book one side, if they book either.

Where the balance comes from

Three sources, and most multi-entity owners have all three running at once.

A pays for B. The operating company’s card pays the property company’s insurance, because the card was in the wallet. The property company’s account pays the restaurant’s produce vendor, because that account had cash that day. Every one of those is a loan from one entity to the other, and it happens dozens of times a year.

B lends C. A deliberate transfer: the restaurant sends $20,000 to the new location’s entity to cover its first month. Often booked as a transfer in one set of books and as a deposit, or as revenue, or as nothing in particular, in the other.

The owner draws from whichever has cash. The owner takes a distribution from the entity with the largest balance, which usually isn’t the entity that earned the money. Booked as a draw from the wrong entity, it misstates equity in both.

Each of these creates a due-to/due-from balance whether or not anyone records it. The books either reflect it or they don’t. If they don’t, the effects compound.

How do I record a payment one LLC makes for another?

Two entries, one in each entity. When entity A pays a $1,200 insurance bill that belongs to entity B:

• In A’s books: the $1,200 leaving the bank is recorded as an increase to “Due from B,” not as insurance expense. A didn’t buy insurance. A lent B $1,200.
• In B’s books: the $1,200 is recorded as insurance expense, with the offset to “Due to A.” B got the insurance and owes A for it.

Now A’s expenses are correct, B’s expenses are correct, and the intercompany balance is $1,200 on both sides. If A and B later settle up with a transfer, both balances go to zero.

The one variation: sometimes a transfer between entities isn’t a loan at all. The owner is moving capital, contributing to one entity from another they own. That’s a capital contribution or distribution, not a due-to/due-from, and it’s booked as equity. The transaction looks identical in the bank feed. The difference is intent, and it’s a question the bookkeeper has to ask the owner, which is why it goes on the monthly question list and not into a guess.

What it does to K-1s

For partnerships and S-corps, each entity’s balance sheet and each partner’s capital account flow to the K-1s, and the K-1s flow to the partners’ personal returns. Intercompany booked on one side produces a wrong balance sheet, wrong capital accounts, and K-1s that carry the error to every partner. A draw taken from the wrong entity shows up as a distribution to one partner from an entity that didn’t earn it, which in a partnership with unequal ownership across entities is a real problem.

Fixing it after the returns are filed means amended entity returns, amended K-1s, and amended personal returns for every partner. Fixing it in the month it happened means one journal entry in each entity.

The missing roll-up

The second place multi-entity bookkeeping breaks is the report nobody has: the consolidated statement. Three entities means three sets of books, and it should mean a fourth: the group, with intercompany eliminated.

The roll-up is only possible once the intercompany balances tie. If A’s due-from-B is $14,000 and B’s due-to-A is $9,000, the consolidation has a $5,000 hole, and the consolidated balance sheet doesn’t balance. So the two problems are one problem. Tie intercompany, and the roll-up follows. Skip it, and there’s no group view, only three partial ones.

Why is my balance sheet wrong across my companies?

Because intercompany moves were booked on one side only, so the balances have grown in opposite directions for years, and no one has tied them. Usually the first sign is an entity whose “due from” balance keeps growing with no corresponding “due to” anywhere, or a cash transfer that’s been sitting in a suspense account since the year the entity was formed.

The monthly fix

Once a month, as part of each entity’s close, the intercompany accounts across the group get put side by side. A’s due-from-B against B’s due-to-A. B’s due-from-C against C’s due-to-B. Every pair should match, and the total across the group should net to zero.

When a pair doesn’t match, the difference is one of three things: a payment booked on one side only, a transfer booked as something else, or a draw taken from the wrong entity. All three are findable the same month they happened, because the transaction is still in the bank feed and the owner still remembers what it was. A year later, none of that is true.

What a CFO does with this number

With intercompany tied, a fractional CFO can read two things side by side that are otherwise unreadable: the group P&L, which says whether the whole makes money, and each entity’s real P&L, which says which entity makes it. The consolidated view is for the lender, the buyer, and the owner’s own understanding of the business. The per-entity view is what drives each return and each decision about whether that entity earns its keep. Both depend on the same monthly tie-out, and neither exists without it.

Where we come in

We keep separate books for each entity, on one chart of accounts, with every intercompany move booked on both sides and tied to zero across the group in every monthly close. Draws go to the entity that earned them. The consolidated statements sit on top, monthly, and the K-1s come out of books that are already right. If you own several entities and the balance sheets have never agreed with each other, reach out. We’ll tie the intercompany accounts first, because everything else depends on it.

Frequently asked questions

What is due-to/due-from?
The receivable one entity records and the payable another records when money moves between them; the two must match every month.

How do I record one LLC paying another’s bill?
The paying entity books a due-from the other; the other books the expense and a due-to the payer, or the transfer is booked as a capital move if that’s what it is.

Why do the balance sheets disagree?
Because intercompany moves were booked on one side only, so the balances grow in opposite directions until someone ties them.