Intercompany eliminations in consolidation: a practical guide

1. What they are and why they matter

When two companies in the same group sell products to each other, the group as a whole has not made money: it only moved goods from one box to another. If you do not eliminate those transactions, you inflate revenue, costs, assets and liabilities.

The goal of consolidation is to present the group as if it were a single economic entity. Everything that happens between subsidiaries must disappear from the consolidated statements.

2. Most common types of eliminations

The most common intercompany transactions are: sales of goods or services, loans and funding, dividends distributed, and purchases of fixed assets. Each type requires a different accounting treatment.

We recommend classifying them in your eliminations sheet with issuing and receiving entity columns, amount and a reference to the source document.

• Intercompany sales: eliminate the revenue in the seller and the purchase in the buyer.
• Treasury and loans: offset one company liability against the other asset.
• Dividends: eliminate the financial income and the reserve received.

3. A repeatable monthly process

At month-end, ask each subsidiary for the list of transactions with other group companies and reconcile both sides. The difference is usually a timing issue: one recognizes earlier than the other.

Once reconciled, apply the adjustments in the eliminations sheet and check that the consolidation equals the sum of subsidiaries minus the adjustments.

4. Automate the control

A manual consolidation requires remembering to apply every elimination every month. With FinBoard you sync each subsidiary accounts to your Google Sheets and centralize the process, reducing the risk of a forgotten elimination.