Intercompany Accounting For Wings Very important in Civil

Intercompany Accounting For Wings • Very important in Civil Air Patrol financial accounting • Can be very confusing ONE CIVIL AIR PATROL, EXCELLING IN SERVICE TO OUR NATION AND OUR MEMBERS! 1

What Are Intercompany Transactions? • Transactions between components of an affiliated group filing consolidated financial statements or tax return • Civil Air Patrol does report using consolidated financial statements • Civil Air Patrol does file an annual group Form 990 with the IRS ONE CIVIL AIR PATROL, EXCELLING IN SERVICE TO OUR NATION AND OUR MEMBERS! 2

Why Are They Important To Us? • Accounting guidelines 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, wings payments to other wings, wings payments to regions are all intercompany transactions ONE CIVIL AIR PATROL, EXCELLING IN SERVICE TO OUR NATION AND OUR MEMBERS! 3

Posting Intercompany Transactions • Our focus is transactions below NHQ level • Revenue between regions, wings and units gets posted to an account beginning with 65 • Expense between regions, wings and units gets posted to an account beginning with 95 • Only intercompany transactions get posted to 65 income and 95 expense accounts ONE CIVIL AIR PATROL, EXCELLING IN SERVICE TO OUR NATION AND OUR MEMBERS! 4

Intercompany Revenue Accounts • • • • • • 6500000 6510100 6510110 6510120 6510200 6510215 6510220 6510225 6510230 6510240 6510250 6510290 6513000 6513015 6513020 6513025 6513030 6513040 6513050 6513060 6513090 From Units Below National Headquarters From Regions and Wings From Regions through NHQ Other Income from Regions From Wings Proficiency Flying Aircraft Fuel Vehicle Maintenance Vehicle Fuel Mission Reimbursements Membership Dues Activities Miscellaneous From Units Below Proficiency Flying Aircraft Fuel Vehicle Maintenance Vehicle Fuel Mission Reimbursements Membership Dues Wing Conference Encampment Miscellaneous ONE CIVIL AIR PATROL, EXCELLING IN SERVICE TO OUR NATION AND OUR MEMBERS! 5

Intercompany Expense Accounts • • • • • • 9510000 9510015 9510020 9510025 9510030 9510040 9510055 9510060 9510090 9520000 9520015 9520020 9520025 9520030 9520040 9520050 9520060 9520090 Expenditures with Regions Aircraft Maintenance Aircraft Fuel Vehicle Maintenance Vehicle Fuel Mission Reimbursements Membership Dues Website Hosting Region Activities Region Conference Miscellaneous Expenditures with Wings Proficiency Flying Aircraft Fuel Vehicle Maintenance Vehicle Fuel Mission Reimbursements Membership Dues Wing Conferences Encampment Miscellaneous ONE CIVIL AIR PATROL, EXCELLING IN SERVICE TO OUR NATION AND OUR MEMBERS! 6

Intercompany Expense Accounts Cont. • • • 9530000 9530015 9530020 9530025 9530030 9530040 9530050 9530060 9530070 9530090 Expenditures with Units Below Proficiency Flying Aircraft Fuel Vehicle Maintenance Vehicle Fuel Mission Reimbursements Membership Dues Encampment Scholarships Unit Activities Miscellaneous • Remember! Only intercompany transactions get posted to 65 income and 95 expense accounts ONE CIVIL AIR PATROL, EXCELLING IN SERVICE TO OUR NATION AND OUR MEMBERS! 7

The Key to Intercompany Transactions • If you post revenue to an intercompany revenue account, you or somebody else in CAP must post an equal 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 ONE CIVIL AIR PATROL, EXCELLING IN SERVICE TO OUR NATION AND OUR MEMBERS! 8

Intercompany Transaction Posting The fool proof method of ensuring intercompany transactions remain balanced is to create intercompany invoices (income) and intercompany bills (expense) at the same time with the same date for the same amount. This assumes you are posting both sides of the transaction within your wing. Income Expense ONE CIVIL AIR PATROL, EXCELLING IN SERVICE TO OUR NATION AND OUR MEMBERS! 9

Intercompany Example • TX Wing pays TX-455 $100 per month to clean Wing HQ • An invoice for $100 is prepared with TX Wing as the customer and is dated the last day of the month • The invoice item posts to account 6510290, From Wings Miscellaneous • The invoice class is TX-455 to capture the revenue in the TX-455 Budget to Actual Report • A bill for $100 is prepared with TX-455 as the vendor and is dated the last day of the month ONE CIVIL AIR PATROL, EXCELLING IN SERVICE TO OUR NATION AND OUR MEMBERS! 10

Intercompany Example • The bill posts to account 9530090, Expenditures With Units Below - Miscellaneous • The bill class is TX-001 since this is an expense for TX Wing • Intercompany revenue (65 account) and intercompany expense (95 account) are equal on the same date • Bill payment and invoice receipt of payment will not affect the revenue and expense date ONE CIVIL AIR PATROL, EXCELLING IN SERVICE TO OUR NATION AND OUR MEMBERS! 11

Common Intercompany Posting Errors • Posting intercompany revenue and expense in non-intercompany accounts • Example – A squadron pays for its members to attend the wing conference. This often gets posted to 6212000 Wing Conference Registration in error. Since this is a squadron paying wing (CAP to CAP) it is intercompany revenue and must be posted to 6513050 From Units Below – Wing Conference. The squadron expense gets posted to 9520000 Expense With Wings – Wing Conferences • The above example is also true if another wing is paying for one of its members to attend your wing conference. Your wing records intercompany revenue in account 6510250 From Wings – Activities. The paying wing records intercompany expense in account 9520000 Expense With Wings – Wing Conferences • The class should be Wing Conference for the revenue and the expense ONE CIVIL AIR PATROL, EXCELLING IN SERVICE TO OUR NATION AND OUR MEMBERS! 12

Common Intercompany Posting Errors • Posting non-intercompany revenue and expense in intercompany accounts • Example – Squadron member John Smith is being reimbursed for purchasing squadron supplies. Since John is a CAP member this reimbursement often gets posted in error to an intercompany expense account beginning with 95. • This is not intercompany expense because the funds paid to John are leaving CAP. • The correct account is 7700100 Supplies • Amounts posted to 65 intercompany revenue accounts and 95 intercompany expense accounts do not increase or decrease CAP cash because they offset each other. It is like taking money from your right pocket and putting it in your left pocket ONE CIVIL AIR PATROL, EXCELLING IN SERVICE TO OUR NATION AND OUR MEMBERS! 13

Common Intercompany Posting Errors • Intercompany invoices become intercompany accounts receivable (A/R) until payment is received. Intercompany bills become intercompany accounts payable (A/P) until payment is made • On 30 September it is extremely important that intercompany A/R and intercompany A/P equal each other • Wings sometimes pay an intercompany bill with a squadron in late September. This satisfies the A/P and it does not show on the 30 September A/P Aging Detail Report • However, the squadron does not deposit the payment until sometime in October. This causes the A/R to remain open on the 30 September A/R Aging Detail Report until the receive payment is recorded • Wings should not pay intercompany bills in late September if the intercompany payment won’t be posted until October ONE CIVIL AIR PATROL, EXCELLING IN SERVICE TO OUR NATION AND OUR MEMBERS! 14

Quick. Books Intercompany Report The next slide shows a report that can tell you at a glance if intercompany is in balance. If all the intercompany transactions are within your wing, the net income will be zero. If there are transactions with CAP components outside of your wing, those amounts will show as positive or negative net income because you are only posting one side of the transaction. This report is very helpful and should be reviewed frequently. Small intercompany variances are much easier to address than incorrect postings over a lengthy period of time. Your WFA can create this report for you. ONE CIVIL AIR PATROL, EXCELLING IN SERVICE TO OUR NATION AND OUR MEMBERS! 15

Quick. Books Intercompany Report ONE CIVIL AIR PATROL, EXCELLING IN SERVICE TO OUR NATION AND OUR MEMBERS! 16

Helpful Review The document and diagram below will provide you with a helpful review of intercompany transaction posting ONE CIVIL AIR PATROL, EXCELLING IN SERVICE TO OUR NATION AND OUR MEMBERS! 17