Multi-Entity Cost Allocation
The right way to split shared costs across related entities — with proper journal entries, intercompany balances, and elimination entries your clients can book today.
Why This Matters
When a client runs multiple entities under common ownership — an operating company, a holding company, a real estate LLC — shared costs almost always land in the wrong place. The owner pays rent from Entity A's account, buys insurance through Entity B, and splits nothing. The P&Ls are distorted. Entity A looks unprofitable. Entity B looks like a cash machine. Neither picture is real.
Common mistakes you'll see: One entity carrying 100% of shared rent, shared payroll allocated by headcount when revenue-based is more appropriate, no intercompany balances booked at all (just “we'll settle up later”), and zero elimination entries on consolidated financials — which means the auditor will flag it.
How to spot misallocated costs: Compare gross margins across entities. If one entity has a 60% margin and its sister entity runs at 15%, ask: who's paying the shared rent, shared software, shared admin staff? Run the numbers below to see what the P&Ls should look like after proper allocation.
Step 1: Define Your Entities
Enter each entity your client operates. We need the monthly revenue and direct expenses (COGS, direct labor, direct materials) — not overhead. Shared costs come in Step 2.