Consolidation and eliminations
How multi-entity reporting works, why intercompany balances must be eliminated, and how to read the consolidated statement you hand to a lender.
ConceptFor Firm staff, Bookkeepers, Business owners
Why eliminations exist
If one of your entities charges another a management fee, that fee is revenue in one set of books and an expense in the other. Adding the entities together without adjustment shows revenue the group never earned from anyone outside it, and an equal expense it never paid to anyone outside it.
Elimination removes both sides. What remains is what the group actually transacted with the outside world — which is the only version a lender or an investor should be shown.
Keeping intercompany clean
- Use the intercompany entry screen so both sides are created together and cannot drift.
- Reconcile intercompany balances every month — the receivable in one entity must equal the payable in the other, exactly.
- Do not net intercompany against third-party balances in the same account; keep them separate so they can be eliminated.
- Investigate any intercompany difference immediately. It never gets easier to find, and it grows.
Common questions
Usually one side was posted and the other was not, or the two sides were posted with different dates so they disagree at period end. Compare the two accounts' activity for the period and find the unmatched entry.
No. Locations within one legal entity are a dimension, not separate entities, and need no elimination. Consolidation is for genuinely separate legal entities.
See alsoClasses, locations, and dimensionsEntities, scope, and consolidated views
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