Intercompany Transactions

1. Intercompany Transactions • Very important in Civil Air Patrol financial accounting • Very confusing

2. What Are Intercompany Transactions? • Transactions between components of an affiliated group filing consolidated financial statements or tax return • Civil Air Patrol reports using consolidated financial statements • Civil Air Patrol files an annual group Form 990 with the IRS

3. Why Are They Important? • Generally Accepted Accounting Principles (GAAP) prohibit generating revenue or expense within a reporting entity through intercompany transactions • In CAP, we have lots of intercompany transactions • NHQ payments to wings, squadron payments to wings, wing payments to other wings, wing payments to region

4. So You Might Ask • Aren’t funds we receive from NHQ for funded missions revenue for our wing since we do receive the money? • Aren’t funds we pay to our neighboring wing expense for our wing since we pay them the money? • If intercompany revenue and expense is prohibited by GAAP, why do we bother recording those transactions?

5. Posting Intercompany Transactions • Posted to intercompany revenue and expense accounts

6. Intercompany Revenue Accounts • 6400000 From Units Below National Headquarters • 6410000 From Regions and Wings • 6410100 From Regions • 6410110 From Regions through NHQ • 6410120 Other Income from Regions • 6410200 From Wings • 6410210 Vehicle Maintenance • 6410220 Mission Reimbursements • 6410230 Aircraft Fuel • 6410240 Membership Dues • 6410290 Miscellaneous • 6413000 From Units Below • 6413010 Wing Conference • 6413020 Encampment • 6413030 Proficiency Flying • 6413040 Aircraft Fuel • 6413090 Miscellaneous

7. Intercompany Expense Accounts • 9435000 Expenditures with Regions • 9436000 Expenditures with Wings • 9436010 Wing Conferences • 9436020 Encampment • 9436030 Proficiency Flying • 9436040 Aircraft Fuel • 9436090 Miscellaneous • 9437000 Expenditures with Units Below • 9437010 Vehicle Maintenance • 9437020 Mission Reimbursements • 9437030 Aircraft Fuel • 9437040 Membership Dues • 9437090 Miscellaneous

8. NHQ Intercompany Accounts • 63XXXXX From National Headquarters • 9434XXX Expenditures with NHQ • WFAs are responsible for reconciling all intercompany transactions with NHQ

9. The KEY to Intercompany Transactions • If you post revenue to an intercompany revenue account, you or somebody else in CAP must post an equal expense amount to an intercompany expense account • Intercompany revenue must equal intercompany expense in CAP in order to be eliminated at year end without a variance

10. Intercompany Transaction Posting The fool proof method of ensuring intercompany transactions remain equal is to create intercompany invoices (income) and intercompany bills (expense) at the same time with the same date.

11. Intercompany Example • Cheyenne Sq pays an outside vendor $100 for vehicle maintenance • WY Wing policy is Wing pays for all corporate vehicle maintenance • WY Wing owes Cheyenne Squadron $100 • An invoice is prepared with WY Wing as the customer for $100 • A bill is prepared with Cheyenne Sq as the vendor for $100

12. Intercompany Example • The invoice and bill have the same date • The invoice is posted to account 6410210 (From Wings – vehicle maintenance) • The bill is posted to account 9437010 (Exp with Units – vehicle maintenance) • Intercompany revenue and expense are equal on the same date • Payment and receipt of payment will not affect the revenue and expense date

13. Test Your Knowledge • Every Civil Air Patrol Wing must file an annual report with the IRS • FALSE

14. Test Your Knowledge • SM John Smith pays his squadron dues to XYZ Squadron. This is considered an intercompany transaction since John is a member of Civil Air Patrol • FALSE

15. Test Your Knowledge • Regarding the previous question, XYZ Squadron deposits the dues money from John Smith into its squadron WBP sub account. It then uses that money to pay XYZ Wing for corporate vehicle use. The payment to XYZ Wing is an intercompany transaction • TRUE

16. Questions???