Intercompany Transactions
Definition
Transfers of goods, services, loans or cost allocations between entities under common ownership. Each entity records its own side, and the matching amounts must be eliminated on consolidation so group results are not inflated.
Related Terms in Core Accounting
Consolidation
Combining the financial statements of a parent and its subsidiaries into one set of accounts presenting the group as a single economic entity. Intercompany balances, sales and unrealised profits are eliminated in the process.
Statement of Retained Earnings
A statement reconciling opening retained earnings to the closing figure by adding the period profit and deducting dividends or distributions. It explains the movement linking the profit and loss statement to the balance sheet.
Statement of Cash Flows (Indirect Method)
A cash flow statement that starts from net profit and adjusts for non-cash items such as depreciation and for movements in working capital to arrive at operating cash flow. The indirect method is the common presentation because it reuses figures already in the ledger.
Financial Statements
The standard set of reports describing a business: the balance sheet, the profit and loss statement, the cash flow statement, the statement of changes in equity, and the accompanying notes. Together they show position, performance and cash generation.
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