NetSuite Intercompany Elimination

Intercompany accounting is one of the most difficult accounting concepts that accountants need to demonstrate when doing chartered exams. The trick is that transactions need to be evident in the subsidiary’s books but should not exist in the consolidated parent accounts. To make this work, transactions between different entities need to be eliminated on consolidation to remove them from the accounts at group level.

When producing accounts was a more manual task accountants used intercompany accounts to post consolidation entries and eliminate intercompany transactions. NetSuite takes a slightly evolved approach setting up an elimination subsidiary. It then posts an automated intercompany journal to this elimination subsidiary during the period close process. The journal reverses the P&L impact of the original intercompany journal to an adjustment account which also accounts for any fx movement.

We have addressed setting up Automated Intercompany Management in a previous post. This post will set out the process for monthly intercompany eliminations in NetSuite and give 5 tips for running the monthly intercompany process. There are 3 types of intercompany transactions in NetSuite:

 

• Intercompany Journals
• Sales Invoices
• Vendor Bills

 

Advanced Intercompany Journals

Intercompany journals need to be posted using advanced intercompany journals unless you have customised the standard journal template to allow for elimination postings. Navigate to intercompany journals under the transaction menu and financial.

Adv Interco Journals allows you to post both sides of the intercompany journal and it will check that it balances between entities. This takes away some of the risk of intercompany accounts not balancing.

Advanced Intercompany Journals are similar to posting regular journals but with the following steps:

 

Header Level

• Select a subsidiary that will be the primary subsidiary initiating the journal. This option is at the top of the form.
• You can change the currency in the header level. If this is different from the base currency, exchange rates will be displayed on each individual line.

Line Level

• At the line level enter the subsidiary you are posting that line to.
• If you select an intercompany account you will have the option to tick the Eliminate box for lines that you want to eliminate on consolidation.
• If you select the Eliminate box then you will need to select a Due To/From Subsidiary. This will be the intercompany co-party.
• This journal type has an auto balance option which will balance the journal for you based on the journal subsidiary and the To subsidiary fields.

 

Sales Invoices & Vendor Bill

If you have sales or purchase transactions between intercompany entities you will raise invoices and vendor bills. This process can also start with raising sales and purchase orders.

The process for raising an intercompany sales invoice is similar to a regular invoice for a non-connected customer. It begins under transactions > sales. You need to select the intercompany customer which we have shown you how to set up here (see our automated intercompany management post).

You need to create a corresponding vendor bill in the customer entity. It is useful the use the corresponding invoice number as the reference number on the bill. The vendor will be the selling subsidiary account. Fill in the remaining fields as you would normally. Don’t forget to pair the bill using the Paired Intercompany Transaction Option.

If you want to start the process by creating a purchase order you can do this also. Raise the purchase order first and as above remember to use the subsidiary vendor account making the sale. Also, select an item that is available for resale so it can be added to the sales order as well.

Once the purchase order is created, navigate to Transactions > Sales > Manage Intercompany Sales Orders. You should see the purchase order under pending orders. Select the relevant purchase order, add the outstanding sales details and Generate Sales Order.

From here process the invoices as normal until it comes to the intercompany elimination step.

 

 

Eliminating Intercompany Transactions

 

You will Eliminate Intercompany Transactions as part of your period-end close process. It is the last step before closing on the period-end close checklist. This process picks up the transaction lines that require elimination on the intercompany invoices, vendor bills, and advanced intercompany journals, so long as your team has followed the correct process when creating the transactions.

The elimination journal will eliminate any intercompany transactions where you ticked the Elimination box. Any FX differences based on timing are posted to the Cumulative Translation Adjustment-Elimination (CTA-E) account.

 

5 Tips for NetSuite Intercompany Accounting

1. Automated Intercompany Management will make your intercompany process much easier. From setup through to monthly posting and elimination, once you follow the process your month-end close will be a lot easier.
2. Make sure to use the advanced intercompany journals. If you use regular journals, you will end up having issues with the month-end elimination process and also the currency revaluation process. Standard journals can also be customised to include elimination fields but remember to post 2.
3. Posting Advanced Interco Journals is not always easy but if you are posting lots of them, it will save you time to learn how to do it. Get in touch if you would like to know more.
4. If you have a lot of sales/purchase transactions between subsidiaries raising purchase and sales orders will be a time-consuming process. Just raising invoices will be easier if this works for your business. If not it will be worth looking at some scripts to automate parts of the process. We can help with this.
5. Correcting intercompany transactions that have gone wrong is time-consuming and difficult when using AIM. It is important to have a robust process in place to get them right the first time.

 

This post sets out how to process intercompany transactions, journals and also how to run the month-end elimination process. If you would like to learn more about setting up automated intercompany management, see our post here. If you would like to speak to us about any elements of your intercompany accounting process then please contact us using the form below for a free conversation with one of our consultants.