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Intercompany Eliminations

Intercompany elimination is the process within consolidation that a parent company goes through in order to remove transactions between subsidiary companies in a group. Intercompany transactions occur between two companies under the same parent company. Essentially, this process seeks to ensure that there are only third party transactions left after consolidating entries. This way no payments, receivables, profits or losses are recognised in the consolidated financial statements until they are realized through a transaction with a third party.

There are three types of intercompany eliminations:

  • Intercompany debt: eliminates loans made between subsidiaries
  • Intercompany revenue and expenses: eliminates sales between subsidiaries
  • Intercompany stock ownership: eliminates ownership interest of the parent company in its subsidiaries.

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