Companies operating with multiple subsidiaries engaging in transactions between themselves must adhere to the intercompany accounting guidelines. When discussing the various accounting regulations and SOX compliance necessary for recording transactions, intercompany accounts function as the GL Accounts designated for managing related transactions among subsidiaries to prevent incorrect postings of these balances in other subsidiary-specific accounts. Consequently, these accounts monitor intercompany amounts that need to be eliminated during period-end closings. With a plethora of transactions occurring between sister companies, financial reporting becomes a greater concern, and NetSuite provides various features to manage these transactions, both manually and through an automated process, outlined below. Here are the essentials of Intercompany Accounting setup in NetSuite.
Intercompany Accounting in NetSuite
Inter-Co Accounts refer to GL accounts flagged with their Inter-Co Checkboxes. NetSuite generates Intercompany (Inter-Co) Accounts either by creating a new account or by modifying an existing one. These accounts may be categorized as asset, liability, income, or expense, depending on the nature of the transactions between the subsidiaries. They are identified as Inter-Co accounts by selecting the option to Eliminate the Inter Co Transactions during account setup. With the exception of Bank/Credit Card/Non-Posting, System Generated Accounts, and Fixed Assets, all types of accounts can be designated as Inter-Co Accounts.
Inter-Co Customers and Vendors Setup
NetSuite allows for the manual setup of Inter-Co customers and vendors, facilitated by the Represents Subsidiary feature when selecting the Custom Inter-Co Form while creating the Customer or Vendor. A Default Receivables/Payables account can also be configured on the Finance Tab during this process.
Inter-Co Inventory Setup
When establishing an item, NetSuite provides an option to select the Eliminate Intercompany Transactions box for the Gain/Loss Account identified on the Accounting Subtab. This selection negates the gain/loss amount upon executing intercompany elimination at the period closure. For arm’s length intercompany inventory transfers, the Eliminate Intercompany Transactions task on the Period Close Checklist will not adjust intercompany clearing accounts to zero. Instead, reporting at the subsidiary level will present the intercompany clearing account with a cumulative balance.
Intercompany Accounting Manual JEs
NetSuite facilitates both Manual and Automated Inter-Company Transactions and Settlement. While inputting the manual JE designated for Elimination, users must check the Show Box for the Eliminate label at the line level. This action makes the entry eligible for elimination during month-end closing.
Activating Automated Inter-Co Settlement and Intercompany Framework
Enabling Features permits the activation of Automated Inter-Co Settlement, alongside an option to activate the Inter-Co Framework to facilitate auto-netting of transactions during Period Close. The only prerequisite is having NetSuite One World. Once this feature is enabled, NetSuite automatically generates elimination journal entries based on the intercompany transaction lines and intercompany journal lines marked for elimination. During the period-close process, NetSuite assesses activity in your intercompany accounts and creates journal entries to eliminate any artificial profit and loss amounts. If this feature is not activated, users will need to manually create and track all intercompany transactions and subsequently create and post elimination journal entries. When an administrator activates the Intercompany Framework feature or the Automated Intercompany Management feature, NetSuite grants access to the Intercompany Preferences page to further customize the features based on your preferences. The Per-Line netting and Transfer Pricing feature is exclusive to Inter-Co Framework Enablement. With the complexities associated with manual transaction control and compliance with SOX requirements, it is advisable to enable Automated Inter-Co Management and its Framework to ensure streamlined auditing and accurate financial reporting.
