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.  For these reasons, there are a few different ways to record intercompany transactions in SoftLedger.  

[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 transactions that can be easily recorded.  Please keep in mind that intercompany entries and intercompany eliminations are separate functions.  In certain cases, it may make sense to use intercompany entries, but leave the elimination function disabled.

Example 1 - Corporate Parent Pays Vendors on Behalf of Subsidiary

In this example, an Operating Entity (Parent) will pay a vendor bill on behalf of its subsidiary (Sub 1).  

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 Global 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 that shows the intercompany journal entry that's ready to be recorded.  Assuming, your default is to not create elimination entries, the user will now generate the Intercompany entries. In SoftLedger, we help you make both sides of the entry at once, and therefore call out by row which entity (Location) each journal line relates to. 

Note: if the Intercompany Ledger Accounts aren't automatically populated, ensure those are updated in your system's default account settings.

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

Location: Operating Entity

Dr. Intercompany Receivable              $1,000

         Cr. General Expense                                   $1,000

Location: Subsidiary 1

Dr. General Expense                             $1,000

          Cr. Intercompany Payable                     $1,000

Step 3 - Approve and Post the Journal Entry

There is a final approval step prior to posting the entry, in Financial > Journals> Intercompany Document Journals.  See below.

• POST: This updates the status of the journal from DRAFT to POSTED.
  • NOTE: The recommendation is to make sure the Bill or Invoice is approved/issued first, before Posting the related Inter Company journal. 
• DELETE: If you need to make changes to your Inter Company Journal, select the Journal above and DELETE. Subsequently, navigate back to the appropriate module and the user can recreate the InterCompany journal.

If the intercompany eliminations setting is on, those entries will automatically be eliminated at the shared parent.

Note: If all intercompany entries are similar to the above situation (or follow the same process, but for Accounts Receivable invoices), it generally is recommended to enable intercompany eliminations.  

Example 2 - Corporate Parent Transfers Cash to Subsidiary

In this example, the parent location (Global) transfers funds to it's subsidiary (GHR Holdings) to help them fund operations. 

Unlike the example above, we'll book this as a journal entry (there isn't a separate document to record the underlying transaction).  This means that the underlying transaction and the intercompany transactions are tied together, so the journal entries should not be eliminated.  If this example applies to your business, we recommend disabling intercompany eliminations.

Step 1 - Create a Journal Entry

Create a journal entry where the Location is Global and the IC Location is GHR Holdings.  Then select the Intercompany Receivable and Payable Accounts and the Cash account(or accounts) to be used in the transfer.  In this situation, the receivable will be booked at Global and the payable at GHR Holdings.

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

Location: Global

Dr. Intercompany Receivable                      $561

         Cr. Cash (Global's cash account)                           $561

Location: GHR Holdings

Dr. Other Expense                                       $561

          Cr. Operating Cash (GHR's cash account)            $561

Step 2 - Approve the Journal Entry

Once created, the intercompany journal entry will be available to be approved in the Journals screen, along with any other draft journal entries (aside from Intercompany Document Journals, which have their own screen).