How to Reconcile Intercompany Transactions

To reconcile intercompany transactions, list all transactions between your company’s entities, like intercompany sales, loans, or shared expenses. Compare the entries recorded in each entity’s general ledger to confirm they mirror each other. 

For example, if Company A records a $10,000 sale to Company B, Company B should record a $10,000 purchase. Next, use a reconciliation report or Excel sheet to flag mismatched or missing amounts. Investigate timing differences (like when one side records early) or posting errors (like wrong account codes). 

This process is more important than many realize, as a global survey found that 48% of intercompany stakeholders report having unreconciled balances that are more than 10 years old. Such long-standing discrepancies can distort consolidated financial statements, create audit challenges, and increase compliance risks.

Once identified, adjust entries in both books until every intercompany transaction offsets perfectly. This ensures your consolidated financial statements are accurate and free of duplication.

Identify All Intercompany Accounts

To reconcile intercompany transactions, identify every account involved in intercompany activity. This includes both receivable and payable accounts across each entity.

Examples include:

• Intercompany receivables (amounts owed from one entity to another)
• Intercompany payables (amounts due to another entity)
• Shared expense or revenue accounts (management fees, rent, service charges)

Create a list or table of all intercompany accounts. For example:

Make sure each transaction recorded in one entity’s books has a corresponding entry in the related entity’s records.

Match Intercompany Transactions

Once accounts are identified, the next step is matching. Align transactions recorded in one entity with those in the corresponding entity.

Compare the following details for each transaction:

• Date of transaction
• Amount (should match exactly)
• Description or reference number (invoice, journal entry, etc.)
• Currency (if entities operate in different currencies)

If a sale of services worth $15,000 is recorded in Entity A as “Intercompany Revenue,” make sure Entity B has a corresponding entry under “Intercompany Expense” for the same amount and date.

Use a shared reconciliation spreadsheet or accounting consolidation tool to streamline this matching process.

Investigate and Resolve Discrepancies

Discrepancies are common in intercompany reconciliation. These can arise from:

• Timing differences (recorded in different periods)
• Currency exchange rate variations
• Missing or duplicate entries
• Misclassifications or incorrect amounts

To resolve them:

1. Communicate with the accounting teams of both entities.
2. Verify supporting documentation (invoices, journals, contracts).
3. Adjust entries where necessary through journal corrections or reclassifications.

For example, if Entity A recorded a transaction on December 31 while Entity B posted it on January 2, document the timing difference and align it during consolidation.

Eliminate Intercompany Balances During Consolidation

When preparing consolidated financial statements, intercompany balances must be eliminated to avoid overstating revenue, expenses, or assets.

Here’s how to eliminate them:

• Offset intercompany receivables and payables.
• Remove intercompany sales and cost of goods sold.
• Eliminate intercompany interest or management fees.

Example journal entry for elimination:

This ensures the consolidated balance sheet reflects only transactions with external parties.

Review and Document the Reconciliation

Before closing the books, document the reconciliation process for audit and compliance purposes. Include:

• Reconciliation reports showing matched and unmatched transactions
• Notes explaining adjustments or eliminations
• Approval from both entities’ finance teams

Keep a monthly or quarterly reconciliation schedule to prevent discrepancies from compounding over time.

Automate Intercompany Reconciliation

Manually reconciling intercompany transactions can be time-consuming and error-prone, especially as your business grows. Automation can simplify this process.

Automated reconciliation tools can:

• Match intercompany entries based on predefined rules
• Flag discrepancies instantly
• Generate elimination entries automatically during consolidation

Integrating your accounting systems or using a shared ERP platform ensures both entities record transactions consistently, reducing manual effort.

Bonus Tip: Simplify Intercompany Payments and Records with DepositFix

If your businesses regularly transfer payments or manage shared billing between related entities, DepositFix can help streamline financial operations.

With DepositFix, you can:

• Centralize all intercompany payments and receipts
• Automate invoice creation and payment tracking
• Integrate seamlessly with your accounting system for accurate reconciliation

This not only ensures every intercompany transaction is properly recorded but also minimizes delays, human error, and mismatched data between entities.