What Is Intercompany Accounts

The complexity of intercompany accounting is increasing as it extends beyond accounting and finance to the tax and treasury departments. Companies need to analyze the value chain to understand and execute specific tax policies and transfer pricing agreements. To understand cross-border clearing rules and consolidate them for invoicing, detailed transaction information is required. In this article, we`ll focus on business-to-business management – what it is, its role in closing, and how you can address the challenges it presents. The most common discrepancies in intra-group accounting are often due to the following factors: If one looks at a certain number of credits in one store that are reflected in the fees of another, the ultimate goal is for one to compensate for another. Both companies must enter the transaction and at the consolidated level of the group, any intercompany transaction must be eliminated so that no profit is recognised until it is achieved through a transaction with an external party. Modernizing your intercompany accounting process leads to greater productivity and detects accounting errors before they lead to devastating financial representations. It allows your teams to perform continuous, real-time analysis of global business-to-business execution and present the CFO and controller with the information they need at any time. Increasing business complexity, global expansion and the quicksand of intra-group accounting and tax regulations only exacerbate the problem.

Simply getting both companies to agree on the cost of the transaction, currency conversions and possible VAT treatments is a difficult climb. The three main types of intercompany transactions are: downstream, upstream and laterally. Let`s understand how each of these intercompany transactions is recorded in the books of each unit. Also their impact and how consolidated finances can be adjusted. This article discusses the different stages of intercompany accounting, from accounting consolidation and the types of transactions that are commonly processed, to the various discrepancies that can occur when matching accounts. To minimize delays in organizing differences between companies, the process should be started before the usual point of the reporting cycle. By examining intercompany inconsistencies so early in the reporting cycle, sole proprietorships can take corrective action and correct their positions before attempting consolidation. Accounting consolidation begins with the mapping of a “consolidation perimeter”. These are the companies in a group that must be included in the preparation of the consolidated financial statements. Its scope is determined by the parent company`s control over its subsidiaries. Once the scope of application has been defined, it is necessary to draw up a list of mutual transactions to be eliminated and finally to compare the accounts in order to determine the accuracy and consistency of all the transactions carried out.

Eliminating intercompany transactions as a collaborative process requires counterparties to fully visualize their respective balances as well as the differences between them and the underlying transactions. Even in intra-group transactions, counterparties need common access to a common understanding of their intercompany positions. But what types of intercompany transactions are involved? What is the best way to ensure smooth and efficient accounting consolidation? Communication is a big problem. When processing intercompany transactions, it is essential that parent companies and their subsidiaries first discuss in depth and agree on the decisive conditions. Accountants at all companies are required to work carefully and stay in regular contact with others to ensure the accuracy of intercompany invoices, especially when companies still process transactions manually to avoid costly mistakes. A critical area to address when standardizing global policies is data management. This makes it easier to identify intercompany transactions and process them across multiple platforms with common charts of accounts. All built-in reporting capabilities that meet financial, legal, and tax requirements must also support the built-in transaction flow. .