# Intercompany Eliminations

> Source: https://netray.co/glossary/intercompany-eliminations
> Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems.
> Section: Glossary

## Short answer

Intercompany eliminations are consolidation entries that remove transactions and balances between legal entities of the same group, such as intercompany sales, loans and unrealized inventory profit, so group financials show only dealings with outside parties.

## Aliases

- intercompany elimination
- consolidation eliminations
- intercompany reconciliation

## Category

erp-core

## Full Definition

When a manufacturing subsidiary sells components to a sister company, each entity books a sale and a purchase or a receivable and a payable. Consolidated statements must not count these as revenue or debt. Elimination entries cancel the sale against the purchase, and the receivable against the payable, and they also remove the profit still embedded in inventory that has not yet been sold outside the group.

That last item matters for manufacturers. If entity A sells goods to entity B at a markup and B still holds them at period end, the markup is unrealized profit and must be eliminated from inventory and from group profit. This requires visibility into stock transferred between entities and the margin applied.

ERP tooling differs. NetSuite OneWorld supports intercompany transactions with automatic mirror documents and elimination subsidiaries for consolidation. SAP provides intercompany reconciliation and group reporting or consolidation tools, and Infor LN and SyteLine support multi-company or multi-site intercompany orders through intercompany trade and settings. Business Central has intercompany postings between companies using partner codes. Many mid-market firms still consolidate in spreadsheets or a separate tool.

The usual pain points are mismatched amounts caused by exchange rates, timing differences when one entity has booked and the other has not, and missing transfer price documentation.

## Why It Matters

- Group revenue, cost and balance sheet are overstated without eliminations, which is a material error.
- Unrealized inventory profit eliminations are needed for correct group margin and inventory value.
- Unreconciled intercompany balances are a leading cause of delay in month-end consolidation.
- Transfer pricing and tax authorities expect intercompany flows to be documented and consistent.

## In Practice

A plant in one country sells 100,000 of subassemblies to its sister company at cost plus 20 percent, so the seller's cost was about 83,300 and its profit 16,700. At month end the buyer still holds 40 percent of the stock unsold. Consolidation eliminates the 100,000 sale and purchase, and also removes 40 percent of the 16,700 profit, about 6,700, from group inventory and profit.

## Faq

### What gets eliminated in consolidation?

**Answer:** Intercompany sales and purchases, receivables and payables, loans and interest, dividends, and unrealized profit in inventory or fixed assets bought from group companies.

### Why do intercompany balances not match?

**Answer:** Typical reasons are timing differences in posting, exchange rate differences, wrong entity coding, and one side entering a transaction that the other has not recorded.

### Can an ERP automate eliminations?

**Answer:** Many can generate elimination journals from intercompany accounts and partner codes. Complex unrealized profit calculations often need extra configuration or a separate consolidation tool.

## Search terms

intercompany eliminations, intercompany reconciliation, consolidation eliminations, unrealized profit in inventory, intercompany transactions ERP, NetSuite OneWorld intercompany, financial consolidation manufacturing, transfer pricing ERP

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