Elimination of Intercompany Transactions
While there may be situations that require you to report gross consolidations (combining business unit ledger balances without eliminations), in most cases, you want to eliminate or cancel out the effect of intercompany transactions.
In General Ledger, you can track intercompany transactions using Due From and Due To accounts that are automatically created by the Journal Edit process, which calls the Inter/IntraUnit Processor. These Due From and Due To rows in the ledger are candidates for elimination when you run the Consolidations process. The following example shows such a transaction when company B0002 buys software for company B0001:
| Business Unit | Account | Debit | Credit |
|---|---|---|---|
|
B0001 |
651001—Software License Expense |
5,000 |
|
|
B0001 |
142000—Due From/To B2 |
5,000 |
|
|
B0002 |
141000—Due From/To B1 |
5,000 |
|
|
B0002 |
200000—Accounts Payable |
5,000 |
When the transactions are exclusively within the organization, you can eliminate the whole transaction when you set up your Consolidations process. In the following example, Company B0001 sold services to Company B0002. The Revenue and Expense accounts need to be eliminated in addition to the Due From and Due To accounts:
| Business Unit | Account | Debit | Credit |
|---|---|---|---|
|
B0001 |
142000—Due From/To B0002 |
3,000 |
|
|
B0001 |
500200—Revenue-Services Sold |
3,000 |
|
|
B0002 |
653000—Expense-Computer Networks |
3,000 |
|
|
B0002 |
141000—Due From/To B0001 |
3,000 |
Using the Affiliate ChartField with a Single Due From/To Account
The Affiliate ChartField is specifically reserved to map transactions between business units when using a single intercompany account. This table provides an example of intercompany payables and receivables among three business units that each use the Affiliate ChartField:
| Business Unit | Account | Affiliate | Amount |
|---|---|---|---|
|
B0001 |
140000—Due From/To Affiliates |
B0002 |
<5,000> |
|
B0001 |
140000—Due From/To Affiliates |
B0003 |
1,000 |
|
B0002 |
140000—Due From/To Affiliates |
B0001 |
5,000 |
|
B0002 |
140000—Due From/To Affiliates |
B0003 |
<3,000> |
|
B0003 |
140000—Due From/To Affiliates |
B0001 |
<1,000> |
|
B0003 |
140000—Due From/To Affiliates |
B0002 |
3,000 |
Using Different Due From/To Account Values
Another method of tracking activity between business units is to use different ChartField values—typically different accounts—for intercompany transactions. Instead of using the Affiliate ChartField, you could use the following accounts to identify the same transactions that were shown in the previous exhibit:
| Business Unit | Account | Amount |
|---|---|---|
|
B0001 |
142000—Due From/To B0002 |
<5,000> |
|
B0001 |
143000—Due From/To B0003 |
1,000 |
|
B0002 |
141000—Due From/To B0001 |
5,000 |
|
B0002 |
143000—Due From/To B0003 |
<3,000> |
|
B0003 |
141000—Due From/To B0001 |
<1,000> |
|
B0003 |
142000—Due From/To B0002 |
3,000 |
In both examples, the same accounting information is present, but fewer account numbers are required when the Affiliate ChartField is populated. This also means that you need to define fewer elimination sets. An elimination set represents a related group of intercompany accounts that record both sides of each transaction between units.
In the case of the following intercompany receivable and payable relationship, you require only one elimination set if you use the Affiliate ChartField:
| Elimination Set | Business Unit | Account |
|---|---|---|
|
One |
NA |
140000—Due From/To Affiliates |
If you do not use the Affiliate ChartField, three elimination sets are required:
| Elimination Set | Business Unit | Account |
|---|---|---|
|
One |
B0001 B0002 |
142000—Due From/To B0002 141000—Due From/To B0001 |
|
Two |
B0001 B0003 |
143000—Due From/To B0003 141000—Due From/To B0001 |
|
Three |
B0002 B0003 |
143000—Due From/To B0003 142000—Due From/To B0002 |