Eliminating Intercompany Revenue and Cost

We are in the process of eliminating intercompany transactions during the corporate close. In this case, we need to automatically eliminate intercompany revenue and cost of sales.

Revenue and cost elimination key points

Intercompany sales are reported with a trading partner, but cost of goods sold is without trading partner in most cases.

Because trading partner only exists on the seller side, the revenue and cost elimination is typically done using a one-sided approach. Using a one-sided approach, the elimination is triggered exclusively by the sales item and posted to both the seller and the buyer.

Note

This is referred to as a one-sided approach because it only considers the sales value and not the cost of goods sold value. This scenario is commonly used when the cost of sales account is calculated (quantity sold x unit cost) and therefore, does not include any intercompany information.

The following is a comparison of Intercompany (IC) revenue and cost elimination and the AP/AR elimination:

• Tasks in consolidation monitor:

  • 2011 IC Elim. Sales

  • 2041 IC Elim. Balance Sheet

• Posting Level (PL) 20Document types:

  • 2E IC elim gross profit | PL20 | Auto reverse except at year-end

  • 2G IC elim balance sheet | PL20 | Auto reverse including at year-end

In the Intercompany revenue and cost elimination log figure:

• The Consolidation Units and Partner Units are eliminated.
• The Profit Centers and Partner Profit Centers are eliminated at the same time.
• The elimination amounts for the buyers and sellers are based exclusively on the revenue value:
  1. The BE02 revenue (FS item 411100) trigger amount of –12,000 was used to eliminate (debit) FR02 revenue with an offset to FS item 41200D.
  2. The BE02 revenue (FS item 411100) trigger was also used to credit FR02 cost (412200) with an offset to FS item 41200D.

When the eliminaton task is run from the consolidation monitor, the following log is available to validate the results.