What are intercompany transactions?
Intercompany transactions are transactions between two or more entities within the same corporate group. They can include the sale of goods, service charges, loans, royalties, cost allocations, management fees, and asset transfers between subsidiaries, company codes, or legal entities.
Also known as: intercompany activity.
Each entity records its side of the transaction in its own accounts. The corresponding values should agree so that the balances can be reconciled and eliminated correctly during group consolidation.
What are common types of intercompany transactions?
Common examples include:
- One group company selling goods to another
- Shared-service or management charges
- Intercompany loans and interest
- Royalties and licence fees
- Cost recharges and allocations
- Asset transfers
- Intercompany receivables and payables
Example: If one entity records an intercompany receivable, the other should record the corresponding payable. The entries may fail to match if their amounts, dates, currencies, company codes or references do not align.
Why do intercompany transactions need to be reconciled?
Intercompany reconciliation confirms that both sides of the relationship agree before consolidation. Unresolved differences can delay the close and create problems when intercompany balances and profits are eliminated from group results.
Common causes of differences include:
- One-sided or late postings
- Different posting periods
- Currency conversion
- Inconsistent references
- Incorrect company codes or accounts
- Disputed charges
- Timing differences in goods or services
- Manual journals posted by separate teams
How are intercompany transactions reconciled?
A typical process involves:
- Identifying the relevant intercompany accounts and relationships.
- Comparing balances or transaction-level records between entities.
- Matching corresponding entries.
- Investigating unmatched or unbalanced items.
- Posting corrections where required.
- Clearing matched open items.
- Approving the reconciliation and retaining evidence.
Balance reconciliation and transaction clearing are related but separate. A balance may be reconciled because the difference is understood, while individual open items may still need to be matched and cleared.
How are intercompany transactions managed in SAP?
SAP records transactions by company code and account. Finance teams can compare intercompany balances and use open-item clearing processes to resolve matched entries. The work can become difficult when there are high volumes, several company codes, and inconsistent reference information.
Standard SAP Intercompany Matching and Reconciliation is available for supported SAP S/4HANA environments and may suit organisations seeking SAP’s broader intercompany matching capabilities. Other organisations may need a focused add-on for matching and clearing open items already held in SAP.
How can BEST support intercompany reconciliation and clearing?
The BEST Open Item Clearing module supports automated matching and clearing of intercompany and inter-account open items across company codes and account types. It is relevant where the requirement is to process high volumes of SAP open items using configurable matching criteria.
The BEST Balance Sheet Recons module supports the related balance reconciliation, review and approval process. The appropriate module depends on whether the main requirement is transaction matching and clearing, balance substantiation and approval, or both.
For a broader comparison of approaches, see intercompany reconciliation solutions for SAP.
Frequently asked questions
What is the difference between intercompany and intracompany transactions?
Intercompany transactions occur between separate legal entities or company codes in the same group. Intracompany transactions occur within the same legal entity.
What is intercompany clearing?
Intercompany clearing matches and clears corresponding open items recorded between group entities. It reduces the number of outstanding items once both sides agree.
Are intercompany reconciliation and elimination the same?
No. Reconciliation identifies and resolves differences between the entities. Elimination removes the agreed intercompany balances and transactions from consolidated group results.