The objective of intercompany accounting is to strip away the financial impact of internal transactions - financial interactions between related entities within the same parent company - to yield financial statements that only reflect activity with independent third parties. The best practices that follow can help intercompany accounting be less cumbersome and more accurate. Historically considered a bland branch of accounting, intercompany accounting has come under scrutiny by regulators in recent years, becoming one of the top reasons public companies must correct or restate their financial reports. When that happens, the owner needs to use intercompany accounting to properly reflect the results of the unified business. For example, a restaurant owner with two different locations may benefit by treating each location as a separate entity. While that definition may accurately conjure visions of large multinational conglomerates, intercompany accounting has applications in companies of all sizes. Large companies often have multiple subsidiaries that do business with each other and, when they do, they’re required to follow the rules of intercompany accounting - the accounting process for internal transactions between legal entities within the same parent company. East, Nordics and Other Regions (opens in new tab)
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