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📘 Understanding the Concept
In today’s corporate environment, multiple companies often operate under one group structure, known as sister concerns. These sister concerns frequently share financial transactions — loans, advances, or payments — to maintain liquidity and operational balance within the group.
One of the most common situations arises when Company A, Company B, and Company C are related entities. Sometimes, a payment made by one company may actually settle the liability of another — creating an intercompany loan adjustment.
The whiteboard diagram below (refreshed for clarity) perfectly illustrates such a transaction cycle:
💡 Case Study Example: A, B, and C Companies
In this case, Company A, Company B, and Company C are three related entities. The transactions flow as follows:
- A paid $10 to B’s supplier (L/C) for Letter of Credit (L/C) settlement.
- Later, B repaid $10 to A through C bank transaction.
- However, B adjusted $10 with C as intercompany loan (no direct bank transaction).
This triangle represents a realistic group-level financial settlement, ensuring internal balance without external cash flow between all entities.
B’s Books – Accounting Journal Entries:
| Date | Particulars | Dr (৳) | Cr (৳) |
| 1 | Bank A/C | 10,00,000 | |
| To Loan from Others – A A/C | 10,00,000 | ||
| (Being loan received from A and deposited into bank) | |||
| 2 | L/C Bill Payable A/C | 10,00,000 | |
| To Bank A/C | 10,00,000 | ||
| (Being L/C bill payment made through bank) | |||
| 3 | Bank A/C | 10,00,000 | |
| To Sister Concern Loan – C A/C | 10,00,000 | ||
| (Being loan received from sister concern C deposited into bank) | |||
| 4 | Loan from Others – A A/C | 10,00,000 | |
| To Bank A/C | 10,00,000 | ||
| (Being repayment of loan to A through bank) |
Note:
Only intercompany loan (Sister Concern C) in B’s Books is liable to pay C, and C’s Books will show the same amount as Receivable from B.
📓 Formal Journal Entries
B’s Books – Management Journal Entries:
| Date | Particulars | Dr (৳) | Cr (৳) |
|---|---|---|---|
| 1 | Accrued Payable A/C | 10,00,000 | |
| To Loan from Others – A A/C | 10,00,000 | ||
| (Being accrued payable adjusted against loan from A) | |||
| 2 | Loan from Others – A A/C | 10,00,000 | |
| To Sister Concern Loan – C A/C | 10,00,000 | ||
| (Being intercompany loan adjusted between A and C without bank transaction) |
C’s Books – Management Journal Entries:
| Date | Particulars | Dr (৳) | Cr (৳) |
|---|---|---|---|
| 1 | Sister Concern Loan – B A/C | 10,00,000 | |
| To Bank A/C | 10,00,000 | ||
| (Being payment made on behalf of B to A, adjusted as intercompany loan) |
⚖️ Key Accounting Insight
✅ Intercompany loans are crucial for maintaining internal cash flow and liquidity.
✅ Such transactions must be properly recorded in the books of both entities to avoid audit discrepancies.
✅ If no bank movement occurs, clear documentation is vital — including approval notes, ledger adjustments, and group confirmation letters.
⚠️ Caution Note (Very Important)
While management or adjustment journals may sometimes appear convenient, they should never replace valid accounting treatments where proper supporting documents, bank transactions, or approval papers can be maintained.
👉 Always follow documented and compliant accounting practices to ensure transparency, audit readiness, and alignment with accounting standards.
Do not practice management journals where there is scope for proper treatment with valid documentation.
🧾 Conclusion
This example highlights how group accounting adjustments can simplify complex financial relationships between sister concerns. Properly maintained journal entries ensure transparency and compliance, even when no direct bank transaction takes place.
At RMG Life Info, we continuously share real-world accounting, finance, and management case studies to help professionals understand the best practices in corporate financial reporting.
