We have many clients that use due to/from accounts. The purpose is to track money that is owed to/from other entities. In the case of one of our clients, they have multiple business locations and books for each, and some expenses are paid from one business that belongs to the other business.
The key to this is making sure that each of the books tie to one another and that the transaction is entered on both companies. For example, company 1 pays the electric bill for company 2 that is deducted from their checking account or paid with a credit card. The account to use would be the due from (current asset) account because it is not an expense for that business.
On company 2’s books, a journal entry must be made to book this transaction. The debit is the expense for the electrical bill, most likely utilities, and the credit would be the due to account (current liability). The end result is that the due to/from chart of accounts ties on each of the books.
Setting up the chart of account: Whether your chart of account for this is an asset or a liability depends on who owes who. Using the above example, the current asset is company 1, and the current liability is company 2. You can also spot check this if you have lots of activity happening and if you see a negative total under assets, move the balance to a liability, if you have a negative under current liability, move the balance to asset.
