Intercompany elimination

Each group company records its intercompany dealings normally in its own books: the seller books a sale and a receivable, the buyer books a purchase and a payable. Those entries are correct for each company on its own. At group level they cancel out, so when the statements are combined you post elimination entries that reverse both sides.

The usual eliminations are intercompany revenue against intercompany cost of sales, intercompany receivables against payables, intercompany loans and the interest on them, dividends paid inside the group, and the profit still sitting in inventory that one company bought from another and has not yet sold to an outside customer.

Elimination only works when both sides agree. The most common problem is a mismatch: the seller invoiced on 30 June, the buyer recorded it on 2 July, or one side booked it in a different currency or account. Reconcile intercompany balances before the close. In Ledgeriano, an intercompany workflow creates the buyer's entry automatically from the seller's posted entry, so the two sides start from the same amount and date. The intercompany automation guide shows the setup.

Parent Co sells goods that cost it 60,000 to its subsidiary for 80,000 on credit. By year end the subsidiary has sold half of them to outside customers for 50,000 and still holds the other half in stock at 40,000.

On consolidation you remove the 80,000 intercompany sale and purchase, the 80,000 receivable and payable, and the 10,000 unrealised profit in the subsidiary's closing stock (half of the 20,000 margin).