If an enterprise resource planning (ERP) system is in place throughout the company, these transactions can typically be identified by flagging a transaction as it is created as being an intercompany item. The issue is of particular concern when an acquisition has just been completed, since the reporting controls are not yet in place at the new acquiree. Intercompany transactions can be difficult to identify, and so require a system of controls to ensure that each of these items is properly identified and brought to the attention of the corporate accounting staff. The intercompany stock ownership, a business eliminates the ownership interest of the parent company in its subsidiaries. These issues most commonly arise when a company is vertically integrated. The reason for these eliminations is that a company cannot recognize revenue from sales to itself all sales must be to external entities. This means that the related revenues, cost of goods sold, and profits are all eliminated. Intercompany Revenue and Expensesįor intercompany revenue and expenses, a business eliminates the sale of goods or services from one entity to another within the group. These issues most commonly arise when funds are being moved between entities by a centralized treasury department. Intercompany Debtįor intercompany debt, a business eliminates any loans made from one entity to another within the group, since these only result in offsetting notes payable and notes receivable, as well as offsetting interest expense and interest income. There are three types of intercompany eliminations, which are noted below. Intercompany eliminations are used to remove from the financial statements of a group of companies any transactions involving dealings between the companies in the group.
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