Overview

Intercompany transactions can be tricky to account for properly, given the need for these transactions to be reflected on multiple sets of books and ultimately eliminated in consolidation. Fortunately, SoftLedger makes it easy. There are multiple ways to book the different kinds of intercompany transactions your company may have.

[Also consider reading our articles on Intercompany Accounting: Everything You Need to Know (2023) and Accounting For Multiple Entities: An Efficient Step-by-Step Process]

Below we'll walk through 2 examples of how intercompany journal entries can be easily recorded in the Accounts Payable module and the Financial module. Please keep in mind that intercompany entries and intercompany eliminations are separate functions since not all intercompany transactions need to be eliminated for financial reporting. In those circumstances, book intercompany journal entries with the elimination function disabled.

In this example, an Operating Entity (Parent) will pay a vendor bill on behalf of its subsidiary (Sub 1). We will book this entry in the Accounts Payable module.

Step 1 - Create Bill

The first step is to add a new Bill in the Accounts Payable module. The accountant at Parent will need to enter all information the same as any other Bill, but will also need to select the Intercompany Location (Sub 1).

Step 2 - Confirm Intercompany Entry

Because the accountant at Parent selected an Intercompany Location when creating the Bill above, an Intercompany Location now appears on the row for that Bill in the Bill Summary screen. Click that link.

A window will appear showing the intercompany journal entries that are ready to be recorded within the Location and IC Location. You'll make the intercompany journal entries on both entities at the same time (as well as eliminations, if applicable). You will be able to clearly identify the entity on each line of the journal entry (see below). Click submit in order to create the journal entries.

Note: if the Intercompany Ledger Accounts aren't automatically populated, ensure those are updated in your system's default account settings. See article here for help: https://softledger.com/support/en/articles/10247001-intercompany-journal-entry

The example in the screenshot above will create the following entries:

Step 3 - Approve and Post the Journal Entry

After Step 2, your intercompany journal entry is in Draft status. In order to approve and post the intercompany journal entry, navigate to: Financial > Journals> Intercompany Document Journals. See below.

If the intercompany eliminations setting is on, Eliminations Lines will be populated along with Intercompany Lines for review (see below) and will be automatically eliminated at the shared parent in consolidated reporting.

Note: For intercompany entries similar to this example (Intercompany Payable/Receivable between two related Locations), it is generally recommended to enable intercompany eliminations.

In this example, the parent location, Abacus Global, transfers $10,000 to it's 100% wholly-owned subsidiary, Abacus Sub, to help them fund operations. We will book this entry in the Financial module.

Let's assume that the cash transfer is an equity contribution from Parent to Subsidiary, meaning, Abacus Sub has no intention to pay Abacus Global back the $10,000.

Step 1 - Create a Journal Entry

In the Abacus Global Location, navigate to the Financial Module and Select Journals. Create a new journal entry and in the IC Location drop-down, select Abacus Sub.

Once IC Location field is populated, the Intercompany lines will appear below:

In the first and second lines, select the cash accounts that Abacus Global and Abacus Sub will send and receive the money from, respectively. The third line is for the other side of the entry on Abacus Global, which we'll select as Investment in Subsidiary. Lastly, the fourth line is the other side of the entry on Abacus Sub's books, which is Contribution by Parent. This will auto-populate if you have set that account to be the default Intercompany Account for Investment in Subsidiary.

Step 2 - Select Which Journal Lines to Eliminate

The Eliminate selection boxes on the left allow you to choose which lines (if any) to eliminate in consolidation. Whether or not to enable this function depends on many circumstances, but under accounting best practices, you would make the following elimination choices in this example:

Shown by Location, here are the entries:

In consolidated reports, the Investment in Subsidiary and Contribution by Parent will be eliminated, so that the Consolidated Abacus Global Trial Balance for the period looks like this:

Step 3 - Approve the Journal Entry

Once the entry is created and you have selected which lines to eliminate, the last step is to approve and post the entry. In the Financial Module->Journals screen, you can approve the intercompany entry, which posts the journal entry on both Abacus Global and Abacus Sub simultaneously.

If this was helpful, please read more about how SoftLedger's Consolidation Accounting Software helps companies manage financials for multiple entities.