Intercompany reconciliation
Definition
Comparing what each group company records with its counterparties and explaining every difference.
Why does it matter in a group?
Reconciling every month, before the group accounts are built, catches differences while the people who made the entries still remember them. Compare each pair in the transaction currency first, then in the group currency. Differences usually come from timing, rates, coding or a dispute. The agreed amount is then removed with an elimination entryElimination entryA group-level entry that removes balances and transactions between group companies.Open the glossary entry, and the rest stays on a list with an owner. See also in-transit itemsIn-transit itemsItems recorded by one company that the other has not yet recorded at the period end, such as an invoice, a payment or goods.Open the glossary entry and counterpartyCounterpartyThe other group company in an intercompany balance or transaction.Open the glossary entry. A short list kept from month to month, with an owner and a date on each line, is worth more than a perfect reconciliation once a year.
A small example
Zenvara’s books say GBP 77,377 is due from Palmridge. Palmridge’s books say GBP 75,164 is due to Zenvara. The difference of 2,213 is invoice ZI-1182 in transit (1,836) plus a rate difference (377).