Due To and Due From in QuickBooks: Fixing Cross-Company Payments
During a transition, customers often pay one company's invoices into another company's bank account. Due To and Due From accounts fix it cleanly.
Customer habits do not switch the day a corporate structure does. When a new parent company takes over an existing business, payments keep arriving in familiar bank accounts, and some land in the wrong one. Invoices raised by the old company get paid into the new company’s account, and the reverse happens too. The standard cure is a pair of mirrored intercompany accounts, and it works well.
Is the approach sound?
Yes. Paired Due To and Due From accounts are the accepted way to move money between related entities without distorting either set of books. Each company records what it can prove from its own paperwork. Its cash sits where the bank says it sits, its receivable clears against the invoice it raised, and the difference is carried as a balance with its affiliate. The result is a matched asset in one file and a matched liability in the other. Nothing is booked to revenue twice, and no invoice stays open while the cash sits elsewhere.
How do you record a payment that landed in the wrong bank account?
Take the common case: an invoice from the original company, paid into the new parent’s bank account. In the original company, receive the payment against that invoice as usual, but deposit it to the intercompany asset account rather than a bank. The receivable clears, and the company now shows an amount due from its affiliate.
In the new parent, record the bank receipt against the intercompany liability account. Its cash is real, and it now owes that amount to its subsidiary. When the reverse happens, an invoice from the parent paid into the older company’s account, the entries simply swap roles. The mechanics are identical whether each company uses its own QuickBooks Online subscription or its own QuickBooks Desktop file.
One caution on the receiving side. The invoice exists only in the other file, so the bank receipt should never be coded to income or to a customer there. Categorize it to the Due To account and the mirror holds.
One clearing account, or separate asset and liability accounts?
Both patterns appear in the files we review, and both can produce clean books. The stronger convention is a matched pair in each file. One is a Due From account, holding what the affiliate owes you, classified as an other current asset. Its partner is a Due To account, holding what you owe the affiliate, classified as an other current liability.
Name each account after the other company’s legal name, and mirror the wording in both files so a reviewer can pair them at a glance.
A single net clearing account per entity is simpler, and some bookkeepers prefer it for low volumes. Its weakness is that netting hides the gross position. You can see the difference between the two directions of flow, but not each direction on its own. If a tax reviewer asks how much actually moved, the net account answers poorly.
Why settle the balance before the year ends?
A standing intercompany balance can be read as an informal loan from one related company to another. Depending on the jurisdiction, undocumented advances between related parties can trigger imputed interest, denied deductions, or unwanted attention. The safe habits are simple. True up the balances with a real bank transfer periodically, and when a balance must linger, put written terms behind it. Your tax preparer can confirm how the rules apply to your filing situation.
Book the settling transfer on both sides against the intercompany accounts, so the asset and the liability reach zero together. A transfer recorded on one side only leaves a phantom balance that will surface at the next reconciliation.
Mistakes we see most often
- Clearing a receivable in the company that received the cash, which counts revenue twice and leaves the true invoice open.
- Coding the receiving company’s bank receipt straight to income, or to a customer in the wrong file.
- Running the intercompany accounts in only one of the two files, so the mirror is one sided.
- Merging or renaming these accounts part way through the year, which breaks the pairing between files.
The check before you settle
Run a balance sheet for both companies on the same date. The Due From balance in one file should equal the Due To balance in the other, to the cent. When the two differ, the cause is nearly always a receipt booked on one side only, or a deposit coded to the bank instead of the clearing account. Find it, correct it, then make the transfer. When both accounts read zero and both banks reconcile, the transition is behind you.