What is due to due from?

Definition

Due to / due from are the paired general ledger accounts that record what one related entity owes another. Due from is an asset on the entity that is owed money.

Due to is a liability on the entity that owes it. The names travel together because each open amount should appear on both sets of books.

The two accounts are meant to be mirrors. If they do not equal, one side posted and the other did not, or the amounts were booked to the wrong entity.

Where it shows up

Balance Sheet: Located as paired receivable and payable balances between related entities.

P&L: Related to nothing extra; the paired balances live on the point-in-time statement.

Cash flow: Related to cash only if cash actually moved between the entities.

See also: Intercompany Account · Elimination Entry · Consolidation

When you look at a company's Balance Sheet, due from sits with receivables and due to sits with payables. Each line is usually named for the related entity, such as Due from Install LLC or Due to Parent.

The Income Statement does not hold these balances. Rent, insurance, or management fees billed between the entities can still appear as income or expense on each company's own P&L.

The due-to and due-from accounts hold only the open amount. They are point-in-time claims, not the income or expense itself.

Cash flow is involved only when cash actually moved between the entities. Booking the pair without a transfer does not change cash.

A parent paying a subsidiary's vendor does move cash. That is the case that belongs on the cash view.

How it works

Each entity keeps its own chart of accounts. Due from is the receivable account on one set of books.

Due to is the payable account on the other. Together they are the pair that should equal.

A journal entry creates each side. Typical triggers are one entity paying a bill for the other, one entity advancing cash, or one entity charging the other for shared costs.

The debit on the due-from books must match the credit on the due-to books in amount and date. Posting both entries is what keeps the pair in agreement.

The pair stays open until someone settles it with cash or offsets it against a reverse amount. At month-end close, the due-from total should equal the due-to total.

If they do not match, stop and find the missing entry before the statements go out. Keep a source document for every movement so each side can prove the same event.

Name the accounts after the counterparty, not a generic catch-all, when more than two entities are involved. That way a reader can see who owes whom without opening every detail report.

Example

A lighting manufacturer owns Install LLC, the crew that hangs the fixtures. The parent pays $8,000 of Install's annual insurance from the parent's bank account because the policy is billed to the parent.

On the parent's books, this is not the parent's insurance cost. It is cash leaving the parent that Install now owes.

Debit: Due from Install LLC $8,000

Credit: Cash $8,000

The parent now holds an $8,000 due-from Install asset, and cash is down $8,000. On Install's books, the mirror is a debit to insurance expense and a credit to Due to Parent for $8,000.

The pair is in place. Anyone reading the two Balance Sheets can see the same $8,000 as a receivable on one and a payable on the other.

Common mix-ups

Due from is not the same as ordinary accounts receivable from customers. A customer receivable is money an outside buyer owes for goods or services.

Due from is money a related entity owes. That can be true even when no outside sale happened.

Due to is not the same as ordinary accounts payable to vendors. A vendor payable is what this company owes an outside supplier.

Due to is what this company owes a related entity. The insurance carrier never appears on that payable line.

People also treat the pair as a single combined-statement cleanup step. The due-to and due-from accounts stay on each entity's own books so each company remains complete.

Removing the pair from a combined view is a later step. Recording the pair is how the two companies keep score with each other day to day.

Related terms

• Intercompany Account: An account tracking balances between related entities under common ownership.
• Elimination Entry: The consolidation entry that removes transactions between related entities.
• Consolidation: Combining multiple entities into one set of financial statements.
• Account Reconciliation: Proving that a ledger balance agrees to independent support.
• Journal Entry: A dated record of debits and credits posted to the ledger.
• Balance Sheet: A statement showing what a business owns, what it owes, and what is left for owners at a single point in time.
• General Ledger: The master record of every account and every posted transaction.
• Chart Of Accounts: The organized list of every account used to record transactions.