Intercompany Vs Intracompany
4 stars based on
Failure to properly eliminate these intercompany intra company trade definition can result in erroneous and overstated financial results including activities between related parties and can intra company trade definition to legal repercussions. To efficiently identify and eliminate intercompany transactions at intra company trade definition close of an accounting period, most organizations use specific accounts to book these transactions.
This facilitates the consolidation process by segregating all intercompany accounting into specific accounts.
You should define intercompany accounts as part of the chart of accounts setup process. Identifying these accounts allows your organization to book transactions identified as intercompany transactions into the special accounts. You should also define any accounts intra company trade definition want to use for intracompany balancing during implementation. Intercompany accounting for transactions performed between separate legal entities that belong to the same corporate enterprise.
Intracompany balancing for journals that involve different groups within the same legal entity, represented by balancing segment values. A group could be a profit center, manufacturing plant, a warehouse, a cost center, or intra company trade definition other organization that represents a subset of a legal entity. Often, these transactions pass through a clearing organization, which is also represented by a balancing segment value.
Before setting up intercompany accounts and intracompany balancing rules, you must complete the following setup steps:. Ledger Options page to balance intracompany journals automatically. You must complete the accounting setup in General Ledger before setting up Intercompany. The assigned legal entities and balancing segment values will not be visible in the Intercompany Setup pages unless the Accounting Setup status is Complete. Do not qualify the same segment as for your chart of accounts.
This will prevent the Balancing API from correctly generating the intercompany segment value. Intercompany journals involve balancing segment values that map to different legal entities.
These journals are balanced for each legal intra company trade definition by using their intercompany accounts. The Balancing API uses the intercompany accounts defined for the relevant effective date range. Since multiple accounts may be defined for the same date range, the Balancing API picks the accounts flagged with the Use for Balancing indicator. Intra company trade definition offsetting debit for a legal entity goes into its intercompany receivables account.
Intercompany accounts may be defined at the intra company trade definition entity level. That is, each transacting legal entity has different intercompany accounts defined for different trading partner legal entities, regardless of which specific balancing segment values of those legal entities are used in the journals.
The transacting and trading partner balancing segment values are then not explicitly specified intra company trade definition the definition and are set to All. Intercompany accounts may be defined at the balancing segment level of the legal entities. In other words, a transacting legal entity can use different accounts for different transacting balancing segment values, depending on what the trading partner legal entity and trading partner balancing segment value are.
In that case, transacting or trading partner balancing segment intra company trade definition may be explicitly specified in the intercompany account definitions. There are different types of intercompany journals. The Balancing API first determines the type of the intercompany journal one-to-one, one-to-many, many-to-one, or many-to-many with respect to the legal entities. For intercompany balancing there is no clearing company usage and all legal entities are balanced by summary net with respect to each other.
Balancing segment value 10 maps to legal entity 1 LE 1. Balancing intra company trade definition value 20 maps to legal entity 2. The chart of accounts for this example has three segments: The API determines that 10 and 20 belong to different legal entities.
Because this journal has one debit legal entity 10 and one credit legal entity 20it is a journal. The API begins with the debit legal entity. The balanced journal is:. Intercompany accounts intra company trade definition defined to provide automated accounting between legal entities within the same company. Defining intercompany Receivables and Payables accounts is required before using the intercompany feature.
Before defining intercompany accounts, you need to choose a transacting legal entity From legal entity and a trading partner legal entity To legal entity. Intracompany balancing rules are used to create intra company trade definition lines on journals between balancing segment values either within the same legal entity, or where there is no legal entity context.
Intracompany balancing rules are used when more than one balancing segment value exists on a transaction or journal entry, as long as you have selected the Balance Intracompany Journals option for the ledger. You cannot post a journal in General Ledger when the debit and credit amounts for each balancing segment value do not net to zero.
These journals can be balanced automatically if you set up balancing rules and enable the option to balance cross-entity journals. You must define Intracompany balancing rules if you want to balance journals automatically. You may define as many or as few balancing rules as you choose, and each balancing rule may have one or many accounting rules.
Because balancing is an automated process, there should be at least one balancing rule with at least one accounting rule to proceed. This default balancing rule should be defined for the journal source Other and journal category Other for the ledger and legal entity you want to balance.
The default accounting rule on each balancing rule is defined for the debit balancing segment value All Other and credit balancing segment value All Other. With intracompany accounting, you can define both a debit due from and credit due to balancing segment, which gives you more control over each balancing relationship. You can specify different debit and credit accounts for each different intracompany trading partner, intra company trade definition is represented by a specific balancing segment value.
If you set up a specific debit and credit balancing segment value, then the assigned debit and credit account combinations are used. If you use All Other, the appropriate trading partner balancing segment value replaces the balancing segment value of the account combination.
For balancing many-to-many journals there are several balancing segment values with net debits and net credits on a transaction and it is not possible to determine which balancing segment value is trading with which balancing segment value. You can decide whether intra company trade definition use a clearing balancing segment value or a default rule to handle these transactions.
A specific rule is not defined for the balancing segment values 13 and The result of the intra company trade definition will be:. Since a specific rule is defined for the balancing segment value 02 in a debit position and balancing segment value 01 in a credit position, the API will use the 02 — 01 rule to create the following lines.
The API processes both intracompany lines between balancing segment values in the same legal entity and intercompany lines between balancing segment values belonging to different legal entities according to the setup defined in the Intracompany Balancing Rules pages and in the Intercompany Accounts pages.
If there are both intercompany and intracompany lines in the same transaction, the Balancing API performs intercompany balancing across legal entities, and then intracompany balancing across balancing segment values within each legal entity. Previously, these balancing lines were not determined until posting to General Ledger. The following table indicates how the different combinations of balancing segment values use the intercompany or intracompany balancing.
Because balancing is an automated process, there must be a valid rule with at least one accounting rule to proceed. The default rule is the rule defined for the source Other and the category Other Other-Other. Intracompany balancing allows you to define rules according to the business needs of your company. When there are many balancing rules defined, the Balancing API uses an evaluation order to pick the appropriate rule. Once the balancing rule is selected, there may also be several accounting rules that must be evaluated on the balancing rule.
The Balancing API uses the same order for evaluating accounting rules, and understanding this evaluation order will intra company trade definition you define your balancing rules and accounting rules. Explicitly defined rules are checked first, and they take precedence over all other rules.
Assume a journal with a source Assets and category Intra company trade definition, requiring debit balancing for Company 01 and credit balancing for Company For balancing rules, this means a specific combination of journal source and journal category exists for the ledger and legal entity.
For example, a balancing rule for the journal source Assets and the journal category Adjustment. For accounting rules, this means a specific combination of debit balancing segment value and credit balancing segment value. For example, debit balancing value 01 and credit balancing segment value If the Balancing API finds no explicit match, then it next searches for an explicitly defined rule combined with a default value. For balancing rules, intra company trade definition means a combination of a specific journal source and the default journal category for the ledger and legal entity.
For example, a balancing rule for the journal source Assets and the journal category Other. For accounting rules, this means a combination of a specific debit balancing segment value and the default credit balancing segment value.
For example, debit balancing value 01 and credit balancing segment value All Other. If the Balancing API finds no match, then it searches for a rule with a default value combined with an explicitly defined value.
For balancing rules, this means a combination of the default journal source and a specific journal category for the intra company trade definition and legal entity. For example, a balancing rule for the journal source Other and the journal category Adjustment.
For accounting rules, this means a combination of the default debit balancing segment value and a specific credit balancing segment value.
For example, debit balancing value All Other and credit balancing segment value Finally, if the Balancing API finds no match after checking for all three previous steps, then the default value should be used. For balancing rules, this means a combination of the default journal source intra company trade definition the default journal intra company trade definition for the ledger and legal entity. For example, a balancing rule for the journal source Other and the journal category Other.
For accounting rules, this means a combination of the default debit balancing segment value and the default credit balancing segment value. For example, debit balancing value All Other and credit balancing segment value All Other. For more information about using the Advanced Global Intercompany System, see: Oracle Financials Implementation Guide Release