Many business owners, especially those owning franchise locations, have more than one business or franchise location. Oftentimes, it is necessary for a business owner to move money from one location to another. Typical reasons for this activity include covering payroll obligations, large expenses, and other standard business needs.
So how does this play out in the books?
Let’s assume that Location A gives Location B $10,000 to cover payroll:
|Location A||Due from Location B||$10,000||Amount owed from Location B|
|Location A||Operating Account||$10,000||Cash outflow to Location B|
|Location B||Operating Account||$10,000||Cash inflow from Location A|
|Location B||Due to Location A||$10,000||Amount owed to Location A|
What’s the end result? Location B has $10,000 more in their operating account and Location A has $10,000 less. Additionally, the journal entry has ensured we have properly tracked the fact that Location B owes Location A $10,000. This “loan” will sit on the books of both locations until it is repaid. These “Due To and Due From” accounts must balance for the books to have been prepared properly.