Elimination entry

Why does it matter in a group?

Without eliminations the group would count the same dealings twice: a sale in one company and a purchase in another, a loan in one and a debt in the other. The entry removes both sides together, so group profit and group assets show only dealings with outsiders.¹ It is made in the consolidation, not in either company’s books. Typical entries cover balances, loansIntercompany loanA loan between two companies in the same group. The interest is eliminated in consolidation, and exchange differences are treated according to whether repayment is planned.Open the glossary entry, sales and purchases, unrealised profitUnrealised profitProfit one group company has recorded on a sale to another while the buyer still holds the goods.Open the glossary entry, and each investment against the subsidiary’s equity.

A small example

Fernhollow owes Zenvara GBP 1,240,000. The elimination entry debits the payable in Fernhollow by 1,240,000 and credits the receivable in Zenvara by the same amount. The group accounts show nothing for the pair.