Record to report / R2R  Reconciliations

Intercompany

Intercompany reconciliations were started in the last post

As different units of your client conduct their business, and there are transactions between the units, there will always be differences between the financial numbers recorded by them. Ideally these differences should not exist. So, why do these differences happen?

There could be thousands of reasons for this, some of the more regular ones are listed below:

  • Timing difference – one most popular cause – material may be in transit, the advice for the entry takes time to reach, month end entry intimation is received late, email not read for advice and more
  • Missing advices – the advices for inter unit entries got missed in transit
  • Different values – the basic values of material moved from unit to unit are different in the two units, so the quantity is properly recorded but the unit transfer price being different causes a balance upset
  • Uninformed debits / credits – some debits / credits may happen at a unit and may not be informed to the other units
  • Disputed entries – one unit may make some entries, which may not be accepted by the other unit or may have been disputed
  • Exchange rate differences – For inter country transactions this is a major source of difference as each unit may end up recording the transaction at a different exchange rate, normally every large company defines norms for write-off of a certain percentage of variation

So why will companies do inter-company business?

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