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The primary objective of intercompany elimination in consolidated financial statements is to present a fair and accurate view of the entire economic entity.
These transactions occur between entities within the same consolidated group and involve the exchange of goods, services, or assets. By eliminating them, companies avoid double counting and the distortion of the consolidated financial statements.
Benefits of eliminating intercompany transactions:
Prevents double counting: Eliminating intercompany transactions avoids duplicating economic activity in the consolidated financial statements, ensuring accuracy in assessing the group's financial performance.
Improves comparability: Removal of intercompany transactions enhances comparability between consolidated financial statements and those of standalone companies, aiding in financial analysis and decision-making.
Provides clearer view of the group: Eliminating intercompany transactions offers a clearer understanding of the consolidated group's financial performance by excluding internal transactions and emphasizing external interactions.
How to Create a Intercompany Elimination Set
The overall elimination process involves:
Identifying intercompany transactions: Reviewing accounting records across all group entities to spot intercompany transactions.
Determining elimination method: Selecting the appropriate elimination method based on transaction type (e.g., sales and purchases at gross value, inventory transfers at cost).
Recording elimination entries: Creating journal entries to eliminate intercompany transactions from individual entity accounts and adjust the consolidated financial statements.
G-Accon provides assistance in this process of eliminating company's accounts through G-Accon for XERO → Tools → Intercompany Eliminations.
Step 1. Select at least two entities:
Select Entities
Step 2. Enter the Set name:
Step 3. Search or group the required account(s) by Code or by Name:
Search By Account Number (Code)Search By Account Name
You can also select All (P&L and Balance Sheet), Profit and Loss only, or Balance Sheet only:
Or specify types or classes:
Step 4. As soon as the account(s) are specify "Create" the set.
Step 5. To review, modify or delete created set, select Modify Set option:
You can view the sets in the list or as cards:
The created sets can be now used as rules in Consolidated reports.
How to Create Consolidated Reports with Inter-company Eliminations?
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