Intercompany balances
What are intercompany balances, and why does a lender read them entity by entity?
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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
Intercompany balances are amounts owed between companies in the same group, from trading, loans or cash pooling, and they cancel out in the consolidated accounts. In each company's own accounts they remain, a receivable for one and a debt for the other, so a borrower's balance sheet can carry an asset that is only as good as a sister company's ability to pay. A lender reads them entity by entity: which way the cash has moved, whether the balance is documented and collectable, and whether debts the borrower owes other group companies should be postponed behind the bank.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// THE FULL PAGE
Intercompany Balances: Reading Them Entity by Entity →
The group's accounts cancel them; the borrower's accounts keep them.
// WHAT IT IS NOT
A shareholder current account is a balance between a company and its owners; intercompany balances run between companies in the same group, though both can carry cash out of the borrower.
// WORKED IN
// NEXT TO IT
THE ACCOUNTS AND THE AUDIT FILE
- Going concern
- Management accounts
- Related-party transactions
- Capitalised costs
- Contingent liabilities
- Bank confirmation (audit)
- Qualified audit opinion
- Subsequent event
- Debt classification on a covenant breach
- Shareholder current account
- Contract assets (unbilled revenue)
- Right-of-use asset and lease liability (IFRS 16)
- Percentage-of-completion revenue (input and output methods)
- Customer prepayments (deferred income)
- Window dressing (period-end debt)
- Doubtful debts provision (expected credit loss allowance)
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