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Consolidating intercompany inventory

These complexities become even more compounded with the topics of intercompany eliminations, proper income tax reporting, proper sales or use tax reporting, etc.

For example, one company we know of had nine wholly-owned subsidiaries.

The parent company showed that subsidiary #1 owed it $105,000 on the accounts receivable trial balance.

They are usually sufficiently trained to read and understand consolidating or consolidated financial statements between a parent company and its subsidiaries or related entities.

Bankers should not be expected to readily accept a “surprise,” such as a parent company having a good income statement but material losses in subsidiary companies.

If intercompany sales are made, what is the strategic plan to protect all entities from taxing authorities related to sales and/or use taxes?

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It’s easy for a parent company to purchase inventory and other such items from its existing vendors.

Someone in the company needs to be aware of these covenants.

These covenants should be monitored monthly in order for the owner to be made aware if a loan covenant has been violated or is close to being violated.

Immediate action should be considered if loan covenant compliance is in danger.

Bankers have a right to receive financial statements that are timely and accurate.

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