What Are Intercompany Eliminations?

Definition

Intercompany eliminations are entries that remove transactions between related entities, so that consolidated financial statements show only activity with outside parties.

When two companies under the same ownership do business with each other, each one records the transaction in its own books. That is correct for each entity. But when the entities are combined into consolidated statements, those transactions would overstate revenue, expenses, assets, and liabilities. From the outside, the organization only moved money from one pocket to another. Eliminations remove that activity.

Common types of intercompany transactions

• Intercompany loans: one entity lends cash to another, creating a receivable on one side and a payable on the other.
• Management fees: a parent or management company charges its entities for oversight and administration.
• Shared services: costs such as payroll, IT, or insurance are paid by one entity and allocated to the others.
• Due to and due from balances: running balances that track what entities owe each other.
• Intercompany sales: one entity sells goods or services to another.

Example elimination entry

A management company charges a property-owning entity a $10,000 management fee for the month.

The management company records $10,000 of management fee revenue and a $10,000 intercompany receivable (due from). The property entity records $10,000 of management fee expense and a $10,000 intercompany payable (due to).

At consolidation, two elimination entries remove the activity:

Account	Debit	Credit
Management fee revenue	$10,000
Management fee expense		$10,000
Intercompany payable (due to)	$10,000
Intercompany receivable (due from)		$10,000

The first entry removes the revenue and the expense. The second removes the balances the entities owe each other. Consolidated net income does not change, because the revenue and expense were equal.

Reconcile before you eliminate

Before balances can be eliminated, they have to match. Intercompany reconciliation is the check that one entity's receivable equals the other entity's payable, and that revenue on one side equals expense on the other. Any difference has to be found and corrected first, or the consolidated statements will be off by that amount. Reconciling throughout the month, instead of only at the close, keeps small differences from piling up.

Why manual eliminations break

• One-sided entries: one entity records the transaction and the other doesn't, or records a different amount.
• Timing differences: the entities book the same transaction in different periods.
• Spreadsheet tracking: elimination entries are recalculated and keyed again at every close.
• Growth: every new entity adds more intercompany relationships to track.

The result is intercompany accounts that don't balance and a close that stalls while the team hunts for the difference.

How Sage Intacct automates intercompany eliminations

Sage Intacct handles intercompany accounting inside the system instead of in spreadsheets:

• Both sides at once: an intercompany transaction entered in one entity automatically creates the due to and due from entries in the other.
• Rule-based eliminations: eliminations are generated during consolidation, based on rules you set up once.
• A clear audit trail: every elimination traces back to the original transactions.

For organizations managing multi-entity accounting, that turns eliminations from a monthly project into a review step.