Intercompany Transactions

Introduction

In multi-entity companies, it is common for one entity to have transactions with another entity in the same company (IETs). This can be for assorted reasons such as Loans, transfers, Accounts receivable and Accounts payable transactions. An example could be Entity A billing Entity B for goods or services like management fees.

Typical Problems

When IETs take place, it is often necessary to create manual journal entries in both entities to account for amounts due and amounts payable.

This requires a lot of duplication of effort and is easy to create mis-postings and errors which will lead to difficulty reconciling intercompany account balances at month and year-end.

It is also a requirement of many businesses to eliminate IETs during consolidations which again is manual and time-consuming.

Solutions

Cloud accounting systems allow inter-entity relationships and mapping to be set up.

Due to these relationships, you can automatically eliminate inter-entity accounts during consolidation so that they do not appear on consolidated financial reports.

Benefits/ROI

Because Inter-entity mappings and relationships automate IET postings, accuracy is almost guaranteed due to the automation.

Control is increased by limiting access to which users can manually post to the inter-entity accounts which in turn makes intercompany reconciliation much easier.

With dimensional-level details being retained on transactions, the financial reporting is still as insightful for IETs as it is for all other transactions posted using cloud accounting.