1. Intercompany Transactions Very important in Civil Air Patrol financial accounting Very confusing

2. What Are Intercompany Transactions? Transactions between components of an affiliated group filing consolidated financial statements or tax return Civil Air Patrol reports using consolidated financial statements Civil Air Patrol files an annual group Form 990 with the IRS

3. Why Are They Important? Generally Accepted Accounting Principles (GAAP) 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, wing payments to other wings, wing payments to region

4. So You Might Ask Aren’t funds we receive from NHQ for funded missions revenue for our wing since we do receive the money? Aren’t funds we pay to our neighboring wing expense for our wing since we pay them the money? If intercompany revenue and expense is prohibited by GAAP, why do we bother recording those transactions?

5. Posting Intercompany Transactions Posted to intercompany revenue and expense accounts

6. Intercompany Revenue Accounts 6400000From Units Below National Headquarters 6410000From Regions and Wings 6410100From Regions 6410110From Regions through NHQ 6410120Other Income from Regions 6410200 From Wings 6410210Vehicle Maintenance 6410220Mission Reimbursements 6410230Aircraft Fuel 6410240Membership Dues 6410290Miscellaneous 6413000From Units Below 6413010Wing Conference 6413020Encampment 6413030Proficiency Flying 6413040Aircraft Fuel 6413090Miscellaneous

7. Intercompany Expense Accounts 9435000Expenditures with Regions 9436000Expenditures with Wings 9436010Wing Conferences 9436020Encampment 9436030Proficiency Flying 9436040Aircraft Fuel 9436090Miscellaneous 9437000Expenditures with Units Below 9437010Vehicle Maintenance 9437020Mission Reimbursements 9437030Aircraft Fuel 9437040Membership Dues 9437090Miscellaneous

8. NHQ Intercompany Accounts 63XXXXXFrom National Headquarters 9434XXXExpenditures with NHQ WFAs are responsible for reconciling all intercompany transactions with NHQ

9. The KEY to Intercompany Transactions If you post revenue to an intercompany revenue account, you or somebody else in CAP must post an equal expense 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

10. Intercompany Transaction Posting The fool proof method of ensuring intercompany transactions remain equal is to create intercompany invoices (income) and intercompany bills (expense) at the same time with the same date.

11. Intercompany Example Cheyenne Sq pays an outside vendor $100 for vehicle maintenance WY Wing policy is Wing pays for all corporate vehicle maintenance WY Wing owes Cheyenne Squadron $100 An invoice is prepared with WY Wing as the customer for $100 A bill is prepared with Cheyenne Sq as the vendor for $100

12. Intercompany Example The invoice and bill have the same date The invoice is posted to account 6410210 (From Wings – vehicle maintenance) The bill is posted to account 9437010 (Exp with Units – vehicle maintenance) Intercompany revenue and expense are equal on the same date Payment and receipt of payment will not affect the revenue and expense date

13. Test Your Knowledge Every Civil Air Patrol Wing must file an annual report with the IRS FALSE

14. Test Your Knowledge SM John Smith pays his squadron dues to XYZ Squadron. This is considered an intercompany transaction since John is a member of Civil Air Patrol FALSE

15. Test Your Knowledge Regarding the previous question, XYZ Squadron deposits the dues money from John Smith into its squadron WBP sub account. It then uses that money to pay XYZ Wing for corporate vehicle use. The payment to XYZ Wing is an intercompany transaction TRUE

16. Questions???