Accounting technology / Glossary / Intercompany eliminations

What are intercompany eliminations?

Definition

Intercompany eliminations are the consolidation entries that remove balances and transactions between companies in the same group, such as intercompany sales, loans, recharges and dividends. Without them, the group's consolidated accounts would double count revenue, costs, receivables and payables that never involved anyone outside the group.

Also calledconsolidation eliminationsintragroup eliminations

Compare the softwareBest financial consolidation software →All 14 financial close vendors →

Required by: IFRS 10, ASC 810
Removes: Intragroup balances, sales, profit
Comes after: Intercompany reconciliation

How intercompany eliminations work

IFRS 10 requires consolidated statements to eliminate intragroup assets, liabilities, equity, income, expenses and cash flows in full; ASC 810 sets the same principle under US GAAP. Typical eliminations remove an intercompany receivable against the matching payable, intercompany revenue against the matching cost, intercompany loans and interest, dividends paid within the group, and the parent's investment against the subsidiary's equity. When one group company sells stock to another at a profit and the stock is still held at period end, that unrealised profit is removed too. Eliminations only work if both sides agree, so intercompany reconciliation comes first; differences from timing, foreign exchange or one-sided postings must be cleared or the eliminations leave a balance. Consolidation software matches the pairs and generates the elimination journals each period.

Common questions

What is the difference between intercompany accounting and eliminations?+

Intercompany accounting records and reconciles transactions between group companies through the period. Eliminations are the consolidation entries that remove those transactions from the group accounts.

What is unrealised profit in inventory?+

Profit one group company makes selling goods to another that are still unsold to outside customers at the reporting date. It is eliminated because the group has not yet earned it.

Why don't intercompany balances agree?+

Common causes are invoices booked by one side only, different posting dates, exchange rate differences, and disputed charges. They are cleared before consolidation so eliminations net to zero.