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Why multi-entity organizations need intercompany line item eliminations to power their accounting processes

Dec 05, 2023

What are Intercompany Line Item Eliminations?

Intercompany line item eliminations are a critical aspect of financial consolidation, especially for organizations with complex ownership structures or multiple subsidiaries. These eliminations involve the identification and removal of specific transaction line items or balances between affiliated entities within the same organization during the process of creating consolidated financial statements.

Why are Intercompany Line Item Eliminations Necessary?

Intercompany transactions, such as sales, expenses, and transfers, are required to be accurately accounted for to present the true financial position of a consolidated entity. For instance, a subsidiary may report a sale to another subsidiary as revenue, while the purchasing subsidiary may record it as an expense. If these transactions were not eliminated, the consolidated financial statements would overstate both revenue and expenses.

The Advantages of Line Item Eliminations

One of the key advantages of intercompany line item eliminations is the ability to select which specific transactions or balances to eliminate. This level of precision allows organizations to tailor the consolidation process to their unique needs and circumstances, account for intercompany transactions efficiently and with complete control and auditability.

Enterprise accounting platforms, like SoftLedger, automate processing and recording intercompany transactions, including supporting line item eliminations. Using these advanced features and capabilities offer significant advantages over limited bookkeeping systems, where risky and time consuming manual processes are required. These advantages include:

1. Accuracy

  • Enterprise accounting platforms rely on predefined rules and algorithms, reducing the risk of human error.
  • Manual processes can be prone to errors like data entry mistakes, posting to the wrong accounts, or omitting transactions.

2. Efficiency

  • Automation excels at handling complexity and high volumes of transactions, significantly reducing the time and effort required for data entry and processing.
  • Manual processes can be time-consuming and labor-intensive, especially for organizations with many operating entities, complex transaction workflows or high intercompany transaction volumes.

3. Scalability

  • Once the enterprise accounting platform is in place, it can seamlessly scale to handle a growing complexity or volume of transactions, manage new intercompany workflows, all without significantly increasing the workload.
  • Manual processes become increasingly challenging and inefficient as transaction complexity and volumes increase.

4. Auditability and Compliance

  • Automated systems generate comprehensive audit trails that track every transaction (by date and time, user, etc.), making it easier to trace and audit transactions. These systems ensure compliance with the process by authorizing specific user permissions for who can conduct the workflows (submit, approve, report).
  • Manual processes may lack detailed audit trails, necessitating additional documentation to maintain proper records and compliance may not be controlled to the same level of detail or security.

5. Cost-Effectiveness

  • While implementing and maintaining an enterprise accounting platform may have a higher upfront cost, it will be more cost-effective in the long run.
  • Manual processes may appear cost-effective initially, but they can become expensive due to labor costs, potential errors, and audit expenses.

See Line Item Eliminations in action

This demo walkthrough illustrates a simple intercompany transfer and the power of line item eliminations.

Learn more about how SoftLedger automates line item eliminations

SoftLedger provides enterprise accounting software without the enterprise price tag, including the finance and accounting controls needed for multi-entity organizations of all sizes.

Contact us to discuss your specific intercompany management requirements and we'll demonstrate our enterprise accounting software capabilities in meeting these needs. Click here to book an introductory meeting!

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Ben Taylor
CEO & Co-Founder at SoftLedger

A CPA with more than 10 years of varied public and private accounting experience, Ben has led many complex financial projects to successful outcomes.

He began his career at Ernst & Young, followed by in-house management roles at Fannie Mae and other public companies.

Ben holds a B.S. in Accounting from the University of Maryland.

Frequently Asked Questions

Yes, users have the option to use their own chart of accounts or SoftLedger’s standard chart of accounts when getting started with SoftLedger.  SoftLedger’s flexibility allows users to make changes to their charts by easily adding new accounts.

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