Definition
An intercompany transaction is a sale, loan, cost recharge, management fee or other dealing between two companies in the same group. It is recorded in both sets of books, for example as a sale and a receivable in one company and a purchase and a payable in the other, and is eliminated when the group consolidates.
How it works
Both sides must match in amount, date and classification. When they do not, the group's intercompany balances fail to reconcile at month end, and the consolidation team spends days chasing differences caused by timing, exchange rates or a missed invoice.
Common types are intercompany sales of goods, shared service recharges (IT, HR, rent), management fees, intercompany loans with interest, and dividends from subsidiaries to the parent. Each needs a pair of accounts, such as due from and due to related parties, tagged with the other company as the party.
Automation removes most of the pain. In Ledgeriano a workflow can mirror a posted entry from one business into the other using an account map, so both sides are created from one source. See the intercompany automation guide.
Example: a 10,000 management fee
The parent charges a subsidiary a monthly management fee. Each company records its own side.
| Company | Account | Debit | Credit |
|---|---|---|---|
| Parent | Due from subsidiary | 10,000 | |
| Parent | Management fee income | 10,000 | |
| Subsidiary | Management fee expense | 10,000 | |
| Subsidiary | Due to parent | 10,000 |