What is Intercompany Accounting?
Intercompany accounting is how companies with multiple branches or subsidiaries track financial transactions and assets shared between them. It's crucial for accurate financial reports and avoiding errors.
Imagine a multinational company with three subsidiaries:
- Subsidiary A sells products to Subsidiary B.
- Subsidiary C provides IT services to Subsidiary A and Subsidiary B.
In the context of intercompany accounting, these transactions are recorded in each subsidiary's books. During the consolidation accounting process, these internal transactions are eliminated to prevent inflating the overall revenue, expenses, and assets in the consolidated financial statements. This ensures that the consolidated statements accurately reflect the financial activities and health of the entire group without double-counting internal transactions.
What is the Pain Point?
Intercompany challenges can be broken down into these 3 categories: Origination (recording of the transaction with another entity within the same company), Settlement(clearing the intercompany activity), and Balancing (making sure entities are in sync and the transactions recorded on both entities net to zero). Balancing is our focus as it aligns best with our FQ platform, with the focus being on tasks, workflows and recs.
Key Features of Intercompany
- Intercompany Matrix: This is the first screen shown when the Intercompany tab is selected. The Matrix View is a management heat map of intercompany activity that is built on relationships between Reporting Entities and Trading Partners. All amounts in the Matrix View are shown in reporting currency.
- You have the ability to drag and drop columns in the view itself, use the column bar on the side to add or remove columns, and create filters and groups.
- On hover on any amount (or ‘Balanced’), the number of transactions and total amounts by Reporting Entity and Trading Partner are visible.
- If you select any amount (or ‘Balanced’), it will take you to the matching view for the specific entity relationship you selected.
- To extract information from the Matrix, from anywhere in the table right click and select export, and choose if you want to export to CSV or Excel.
- List View: If you select List to the right of Matrix View, it will take you to the List View. This is a pivot of the same information contained in the Matrix View, with visibility into the amounts for Reporting Entity and Trading Partner. This view is the perfect place for a staff accountant who is responsible for specific intercompany relationships to begin their intercompany balancing work. All amounts in the List View are shown in the reporting currency.
- You can drag and drop columns in the view itself, use the column bar on the side to add or remove columns, and create filters and groups.
- On hover on any amount (or ‘Balanced’), the number of transactions and total amounts by Reporting Entity and Trading Partner are visible.
- If you select any amount (or ‘Balanced’), it will take you to the matching view for the specific entity relationship you selected.
- To extract information from the List View, from anywhere in the table right click and select export, and choose if you want to export to CSV or Excel.
- Refresh Button: If you select Refresh to the left of Matrix View, it will initiate the refresh process. The refresh process involves: finding transactions (if you are a NetSuite and enhanced data connection customer), checking for completeness, applying FX rates to transactions, and running matching rules. If you are a NetSuite and an enhanced data connection customer, this is how you can manually refresh your data in Intercompany. The refresh progress box will display to let you know if the refresh was successful. You should refresh the browser page once the refresh is complete.
- Quick Filter: If you select Transaction Issues to the left of the page under Intercompany on either the Matrix or List Views, to the left of Matrix View, it will remove columns or rows where there is no data, Not a Trading Partner, and/or it’s ‘Balanced’, leaving only those relationships where imbalances exist.
- Matching View - Unmatched Transactions: From either the Matrix or List Views, if you select any amount (or ‘Balanced’) it will take you to the Matching View - Unmatched Transactions for the specific entity relationship you selected. This is a list of all intercompany transactions for the entity relationship selected. From the unmatched tab, you can create a manual match or create an AI Rule.
- You can drag and drop columns in either or both the Reporting Entity and Trading Partner tables themselves, use the column bar on the side to add or remove columns, and create filters and groups in one or both tables.
- On hover on any Reporting Amount that has a dashed underline, you will see the method of translation used (End of Period for Balance Sheet accounts and Period Average for Income Statement Accounts), the calculation performed, the date the rates were loaded, and the exchange rate used for the translation. This provides full transparency to the translation.
- To extract information from the Matching View - Unmatched Transactions, from anywhere in either or both of the tables right click and select export, and choose if you want to export to CSV or Excel.
- Above the Trading Partner table, the Transaction Matched Progress bar displays the number of matches made.
- You can change the view of the tables from side to side to stacked one on top of the other by selecting these buttons.
- For close customers with Journal Entry Management (JEM), correcting journal entries can be created directly from Intercompany. To do this:
- Select the transaction(s) requiring correction.
- Click the Create Journal Entry button.
- Choose the Entity for the entry and map it to a valid Close Entity.
- This action opens JEM, allowing you to post your entry. The journal entry will appear in the pending tab in Intercompany once you reload the IC page. After transactions are refreshed or manually loaded, the selected transactions will transition from the Pending Matches tab to the Matched Transactions tab, provided the journal in your ERP aligns with the entry populated in JEM.
- Matching View - Matched Transactions: From the Matching View - Unmatched Transactions tab, you can select Matched Transactions to review the matches that have been made for the entity relationship you are viewing.
- You can drag and drop columns in the table itself, use the column bar on the side to add or remove columns, and create filters and groups in the table.
- On hover on any Reporting Amount that has a dashed underline, you will see the method of translation used (End of Period for Balance Sheet accounts and Period Average for Income Statement Accounts), the calculation performed, the date the rates were loaded, and the exchange rate used for the translation. This provides full transparency to the translation.
- To extract information from the Matching View - Matched Transactions, from anywhere in the table right click and select export, and choose if you want to export to CSV or Excel.
- Above the Trading Partner table, the Transaction Matched Progress bar displays the number of matches made.
- If there is a match that you do not agree with or one that was made in error, you can select the check box next to the Match ID or the transactions themselves and select Unmatch. If you want to unmatch all transactions, select the box in the Match ID column to select all matches.