Posted: November 20th, 2015

Accounting – Plant Transfers

Accounting – Plant Transfers

There are two types of inventory transfers. First there is Interplant Transfers  which occurs when a corporation owns more than one company and one company within the corporation ships inventory to another company within the corporation. The second type of inventory transfer is Intracompany Transfers. This type of transfer is from one plant to another plant with the same company.

We will be using intracompany for our project. There are different values used to transfer inventory. We can bill the receiving plant. However, this would result in recording sales and cost of sales twice, once when we invoice the receiving plant and secondly the receiving plant invoices the final customer. If we use this method we will have to eliminate the  intracompany sales. This process is complicated and is covered in advanced accounting courses. We will not use this method. Instead, we will transfer inventory at cost utilizing intraplant accounts.

For out exercisa we will make intracompany transfers with Corporation Z. Corporation Z has three plants. Dayton-Plant 1, Cleveland-Plant 2 and Canada-Plant 3.  Normally we would consider currency exchange rate differences between the United State and Canada. For simplicity, we will assume there are no exchange rate differences

Individual plant inventory and intracompany general ledger accounts are as follows:

General Ledger Account Numbers

Dayton-Plant 1

Inventory account                                                           1101

Intracompany Cleveland-Plant 2                                               1002

Intracompany Canada-Plant 3                                    1003

Various credits                                                                  1999

Cleveland-Plant 2

Inventory account                                                           1102

Intracompany Dayton-Plant 1                                     2001

Intracompany Canada-Plant 3                                    2003

Various credits                                                                  2999

Canada-Plant 3

Inventory account                                                           1103

Intracompany Dayton-Plant 1                                     3001

Intracompany Cleveland-Plant 2                                               3002

Various credits                                                                  3999

Establish a general ledger for each plant including account balances. T-accounts work well. Opening balances are as follows:

Dr                           Cr

Dayton

Inventory-1101                                                                                                 10,000

Various credits-1999                                                                                                                       10,000

Intracompany Cleveland-1002                                                                                                               0

Intracompany Canada-1003                                                                                                                    0

Dr                           Cr

Cleveland

Inventory-1102                                                                                                 8,000

Various credits-2999                                                                                                                       8,000

Intracompany Dayton-2001                                                                                                                  0

Intrtacompany Canada-2003                                                                                                              0

Dr                           Cr

Canada

Inventory-1103                                                                                                 6,000

Various credits                                                                                                                                  6,000

Intracompany Dayton-3001                                                                                                                 0

Intracompany Cleveland-3002                                                                                                            0

Remember, inventory is an asset and must always have a debit or zero balance. Various credits are used to make the plant ledgers balance. Intracomany accounts can have a debit or credit balance depending in intracompany shipmentrs.

An example of a $500 transfer from Dayton to Cleveland is as follows:

Dr                           Cr

Dayton

Intercompany Cleveland-1002                                                                   500

Dayton Inventory-1101                                                                                                                 500

Dr                           Cr

Cleveland

Cleveland inventrory-1102                                                                           500

Intracompany Dayton-2001                                                                                                         500

Notice, the two plants are in balance. It is good practice for plant controllers or accountants to communicate with each other at month end closing to verify all transfers are posted. If an intracompany transfer is not posted by a plant the company balance sheet will not be accurate.

Your mission, if you choose to accept it, is to prepare journal entries and account balances after posting journal entries. Use journal entry numbers for your post reference.

Journal Entry Number

1                                                              Dayton to Canada                            1,000

2                                                              Cleveland to Dayton                       1,500

3                                                              Canada to Cleveland                       2,000

4                                                              Cleveland to Dayton                       2,500

5                                                              Dayton to Cleveland
1,800

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