Multi-Company Discussion Paper

General:

Organizations that are structured as a series of separate legal entities but operating as an integrated unit have unique challenges.

On one hand there is a need to keep the accounting records separate while on the other hand, there is a strong desire for single setup and common operations.

Companies using PointForce Enterprise have a choice of setting up the software either as a series of separate ‘companies’ or as a series of ‘divisions’ within a single ‘company’.

This discussion paper will deal with the ‘single company’, ‘multi-divisional’ approach.

Requirements:

Separate legal entities require separate financial statements, including balance sheet and income statements. They also require separate audit trails such as invoice, cash receipts and accounts payable records. Additionally, they require separate tax reporting for sales taxes.

These requirements can be met within the PointForce Enterprise system by establishing clear setup procedures along with month-end accounting procedures.

Setup Requirements:

• Each legal entity must be set up as a separate ‘sales office / warehouse’ combination within the distribution system.

• Separate order, invoice and credit note prefixes need to be defined so that invoice and credit registers will be separated.

• Additional sales offices are set up to process sales in a sales office that are delivered from another entity. These sales offices have the same prefix codes as the primary sales office so that order and invoice numbers are grouped together.

• The general ledger needs to be set up with each legal entity as a separate ‘division’. Full balance sheet and income statement accounts need to be defined for each ‘division’. If inter-company sales are to take place, separate general ledger accounts must be set up to isolate the sales and cost of sales entries resulting from these inter-company sales transactions.

• If product costs are to be kept in different currencies in different warehouses (i.e. – some Canadian and some US denominated inventories), then suppliers will need to be set up twice – once with currency codes reflecting translation into Canadian dollars and once with currency codes reflecting translation into US dollars. Each product purchased will need to be set up for each of the two supplier codes, reflecting different currency codes.

• The invoice GL relating table (CC00/Invoicing/General Ledger) must have definitions for inter-company transactions.

• Multiple Tax Codes and Tax Groups must be defined to separate the sales tax liabilities into appropriate general ledger accounts for each legal entity.

• Customers need to be set up with ‘sales tax group’ codes unique for the associated legal entity. They also need bank codes unique to the appropriate legal entity.

Month-End Requirements:

• Review the monthly activity in the inter-company sales and cost of sales accounts.

• Create journal entries to balance the inter-company accounts.

• Create journal entries to reflect exchange adjustments on inter-company transactions.

Year-End Requirements:

• Make one journal entry to transfer the appropriate retained earnings amounts to each balance sheet.

Example:

A company has operations in Vancouver, Mississauga and Dallas. The three operations are separate legal entities. There is a common set of suppliers and product. The operations are managed principally as a single entity.

Sample General Ledger Accounts (this list provides a structure for a sub-set of the chart of accounts – not the full chart):

Division '10' = Vancouver; '20' = Mississauga; '30' = Dallas. Divisions 10 & 20 are denominated in Canadian dollars while division 30 is denominated in US dollars.

Account	Description
10-1100	Bank – Vancouver
10-1200	A/R – Vancouver
10-1221	Intercompany account – Mississauga
10-1231	Intercompany account – Dallas US$
10-1300	Inventory - Vancouver
20-1100	Bank – Mississauga
20-1200	A/R – Mississauga
20-1211	Intercompany account – Vancouver
20-1231	Intercomapny account – Dallas
20-1300	Inventory - Mississauga
30-1100	Bank – Dallas
30-1200	A/R – Dallas
30-1211	Intercompany account – Vancouver
30-1221	Intercompany account – Mississauga
30-1251	Exchange – Intercompany – Vancouver
30-1300	Inventory - Dallas
10-4000	Sales – Vancouver – Normal
10-4021	Sales – Vancouver – from Mississauga
10-4031	Sales – Vancouver – from Dallas
10-5000	Cost of Sales – Vancouver – Normal
10-5021	Cost of Sales – Vancouver from Mississauga
10-5031	Cost of Sales – Vancouver from Dallas
20-4000	Sales – Mississauga - Normal
20-4011	Sales – Mississauga – from Vancouver
20-4031	Sales – Mississauga – from Dallas
20-5000	Cost of Sales – Mississauga – Normal
20-5011	Cost of Sales – Mississauga from Vcvr
20-5031	Cost of Sales – Mississauga from Dallas
30-4000	Sales – Dallas - Normal
30-4011	Sales – Dallas – from Vancouver
30-4021	Sales – Dallas – from Mississauga
30-5000	Cost of Sales – Dallas – Normal
30-5011	Cost of Sales – Dallas from Vcvr
30-5021	Cost of Sales – Dallas from Mississauga

Sales to Dallas customers shipped from Vancouver are processed through a separate sales office. In this example, the sales office could be number 31. This would allow the setup of the GL relating table to isolate sales and cost of sales entries for shipments to Dallas customers from Vancouver.

Sample Sales Office Setup:

Code	Principal Office	Inventory Source	Order Prefix	Invoice Prefix	Credit Prefix
10	Vancouver	Vancouver	V	V	V
12	Vancouver	Mississauga	V	V	V
13	Vancouver	Dallas	V	V	V
20	Mississauga	Mississauga	M	M	M
21	Mississauga	Vancouver	M	M	M
23	Mississauga	Dallas	M	M	M
30	Dallas	Dallas	U	U	U
31	Dallas	Vancouver	U	U	U
32	Dallas	Mississauga	U	U	U

By setting up the sales GL relating table (program CC00, Folder IN2) properly, sales and associated cost of sales that cross company lines will be isolated in the general ledger. For example, assume that sales of $100,000 US$ are made by Dallas for product shipped from Vancouver (cost $120,000 Cdn = $85,000 US).

The resulting journal entries would be:

  Dr:	30-1200		A/R – Dallas				$100,000
  Cr:	30-4011		Sales – Dallas–from Vcvr		 100,000
  Dr:	30-5011		Cost of Sales–Dallas from Vcvr		$120,000
  Cr:	10-1300		Inventory – Vancouver		 	 120,000
  

At month end, the Dallas and Vancouver balance sheets require an entry to reflect the intercompany transfer of $120,000 Cdn in inventory. The entry would be as follows:

  Dr:	30-1211		Intercompany account – Vancouver	$120,000
  Cr:	10-1231		Intercompany account – Dallas		 120,000
  

In addition, since Dallas is denominated in US$, a further entry is required to reflect the exchange on the intercompany account. This will result in translating the Dallas cost of sales back to US$.

  Dr:	30-1251		Exchange – Intercompany – Vcvr		$35,000
  Cr:	30-5011		Cost of Sales – Dallas from Vcvr	 35,000

Note: The above example reflects a transfer at cost. If the transfer pricing is to reflect a profit element, adjustments to the entries will be required.