Why intercompany balances never agree, and a routine that fixes it
Two companies in one group, one balance between them, two different numbers. Where the gap comes from, a worked month, and the routine that closes it every time.
First published 21 Oct 2026. What changed on 28 Oct
- Added the rate difference to the worked example, so the gap now explains to zero.
- New question on companies that use different accounting systems.
In this post 6 sections
In short
Intercompany balances disagree for three reasons: one side has booked something the other has not, the two sides used different rates, or an entry went to the wrong account. Eliminate the amount both sides agree on each month, list the difference with an owner, and clear it before the next close.
Key takeaways
- Find the cause before you post anything. Almost every difference is timing, rates or coding.
- Eliminate what both sides agree on. Keep the rest visible instead of forcing it.
- Fix the rate and the cut-off before month-end, not during the close.
- Every open difference needs an owner and a date, or it will still be open next month.
Why don’t intercompany balances agree?
Every intercompany balance exists twice: as a receivable in one company and a payable in the other. In theory the two are mirror images. In practice they are booked by different people, on different days, in different currencies and often in different accounting systems.
When they disagree, the cause is nearly always one of three things.
- Timing. One side has booked an invoice, a payment or an accrual that the other has not booked yet. The classic case is an invoice raised on the last day of the month and received in the first days of the next.
- Rates. The two companies translate a foreign currency balance at different rates, or one has revalued it at month-end and the other has not.
- Coding. The entry exists on both sides, but one went to the wrong account or the wrong counterparty: a trade payable instead of an intercompany payable, or the right amount against the wrong sister company.
A fourth cause, a real dispute about what is owed, is rarer. It needs a conversation between the two companies, not an adjustment by the group.
What does a typical difference look like?
Zenvara sells services to Palmridge, its subsidiarySubsidiaryA company that is controlled by another company, its parent.Open the glossary entry in Dubai, and invoices in dirhams. The group reports in pounds sterling and sets one closing rateClosing rateThe spot exchange rate on the last day of the reporting period, used to translate a foreign subsidiary's assets and liabilities.Open the glossary entry for each month. On 30 September 2026 the two sets of books said this.
| Due from Palmridge, in Zenvara’s booksAED 377,450 at 0.2050, Zenvara’s bank rate | 77,377 |
| Due to Zenvara, in Palmridge’s booksAED 368,450 at 0.2040, the group closing rate | (75,164) |
| Difference to explain | 2,213 |
| Explained by | |
| Invoice ZI-1182 in transitIn-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 entryBooked by Zenvara on 29 Sep, by Palmridge on 2 Oct. AED 9,000 at 0.2040 | 1,836 |
| Rate differenceAED 377,450 at 0.2050 less 0.2040 | 377 |
| Left unexplained | 0 |
Example group used across Finconsol guides. Figures rounded to the pound.
Two causes explain the whole gap. Zenvara raised invoice ZI-1182 on 29 September and Palmridge booked it on 2 October, so for three days it existed on one side only. And Zenvara revalued its dirham receivable at its bank’s rate of 0.2050, while the group uses 0.2040 for every company.
Neither is an error in the usual sense. Both would have been found in minutes if the two companies had compared balances by counterpartyCounterpartyThe other group company in an intercompany balance or transaction.Open the glossary entry and in dirhams before anyone translated anything.
Free: Intercompany reconciliation template
This free Excel template compares what each group company records against its sister companies. It lists every pair by counterparty and transaction currency, shows the receivable, the payable and the difference, and records the reason, owner and due date for anything that does not agree. It has one sheet for each month and a filled example.
- One sheet per month, so last month's open items are the first thing you see.
- Pairs by counterparty and transaction currency.
What should you eliminate when the sides differ?
Eliminate the amount both companies agree on, which is the smaller of the two, and leave the difference where everyone can see it.
The standards require intragroup balances to be eliminated in full1, and by the year-end they must be. During the year, though, forcing the larger figure does not make the difference go away. It moves it into another line of the group balance sheet, where nobody looks for it again.
Exchange differences need one more rule. A difference that arises because the group really is exposed to a currency, for example a dirham loan from the parent to the Dubai company, does not eliminate. It stays in consolidated profit or loss, unless the balance is part of the parentParentA company that controls one or more other companies.Open the glossary entry‘s net investment in the subsidiary, in which case it goes to the translation reserveTranslation reserveThe part of group equity that holds exchange differences from translating a foreign subsidiary into the group's currency.Open the glossary entry2. The 377 in Exhibit 1 is different: it is not exposure, only two companies using two rates. The fix is a group rate policy, not an entry.
| Pair | Receivable | Payable | Eliminated | Status |
|---|---|---|---|---|
| Zenvara ↔ Fernhollow | 1,240,000 | 1,240,000 | 1,240,000 | Agrees |
| Zenvara ↔ Palmridge | 77,377 | 75,164 | 75,164 | 2,213 open |
| Fernhollow ↔ Kestrelwick | 317,500 | 317,500 | 317,500 | Agrees |
| Palmridge ↔ Quillfern | 129,000 | 129,000 | 129,000 | Agrees |
A monthly routine that keeps it clean
The routine below takes a group of five to fifteen companies about half a day a month once it is running. The order matters more than the tools.
- Before month-end: publish the cut-off date and the group’s closing and average rates to every company.
- Day 1: each company confirms its intercompany balances by counterparty, in transaction currency.
- Day 2: compare each pairIntercompany reconciliationComparing what each group company records with its counterparties and explaining every difference.Open the glossary entry and list every difference above the group’s threshold.
- Day 2: give each difference a cause: timing, rate, coding or dispute.
- Day 3: correct coding errors in the books, record items in transit as a consolidation adjustment, and leave pure rate differences to the rate policy.
- Day 3: eliminate the agreed amountElimination entryA group-level entry that removes balances and transactions between group companies.Open the glossary entry and carry anything left with an owner and a date.
- Next month: start from last month’s open list before you look at anything new.
Who should own a difference?
The company that is behind owns it. If the receiving company has not booked an invoice, its accountant owns the difference. If the cause is a rate, the group finance team owns it, because the rate is group policy. A dispute belongs to whoever signed the agreement behind the balance.
Write the owner and a due date next to every open item, and review the list at the start of each close. A difference without a name is a difference that will still be there in March.
Questions
Should the larger or the smaller side be eliminated?
Eliminate the amount both companies agree on, which is the smaller side. Keep the difference visible as an open item with an owner until it is explained. Forcing the larger figure hides the error inside another line of the group balance sheet.
Where does an exchange difference on an intercompany balance go?
Under IAS 21 it stays in consolidated profit or loss, because the group is exposed to the currency. The exception is a balance that forms part of the parent’s net investment in a foreign subsidiary: its exchange differences go to other comprehensive income and the translation reserve.
What threshold should a group use for intercompany differences?
A common rule is to investigate any difference above a fixed amount or a small percentage of the balance, whichever is lower, for example GBP 1,000 or 0.5 percent. Set it once for the whole group and lower it at year-end.
Can intercompany balances be reconciled when companies use different accounting systems?
Yes. What matters is that each company reports its intercompany balances by counterparty and in transaction currency. The balances can come from Zoho Books, Xero, QuickBooks or a trial balanceTrial balanceA list of every account balance at a date, with total debits equal to total credits. It is the starting point for consolidating a company's figures.Open the glossary entry exported from any other system.
Sources
- IFRS 10 Consolidated Financial Statements, paragraph B86(c).
- IAS 21 The Effects of Changes in Foreign Exchange Rates, paragraphs 32 and 45.
Prabhu, A. (2026, 28 October). Why intercompany balances never agree, and a routine that fixes it. The Finconsol Blog. https://finconsol.com/blog/why-intercompany-balances-never-agree/
Amit Prabhu leads Finconsol at Aaxonix Tech, a Zoho and NetSuite implementation partner based in Pune, India. He works with multi-company groups and the accountants who serve them on closing many sets of books into one set of group numbers.