Mastering the Maze: NetSuite Intercompany Accounting

Intercompany accounting in NetSuite is a critical component for businesses with multiple subsidiaries or international operations. It ensures that financial statements are accurate and compliant by managing transactions between different entities within the same parent company. This guide delves into the complexities of intercompany transactions, offering a detailed look at how NetSuite handles these activities, from automated management to cross-subsidiary fulfillment.

Table of Contents

1. Transacting Background
2. Intercompany Scenarios
3. Eliminations Background
4. NetSuite Features
5. Intercompany Framework Examples
6. NetSuite Functionality
7. Intercompany Components
8. Data Migration Guidance
9. Other Intercompany Considerations
10. Intercompany Reporting
11. Tips & Tricks / Gotchas
12. Intercompany Elimination with CTE Example

Intercompany Transacting Background

Potential Intercompany Benefits: - Lower cost labor pricing - Lower cost raw/semi-finished materials pricing - Lower cost finished goods pricing - Lower cost loans & cash transfers - More consistent cash flow - Budgeting efficiencies with established transfer pricing

Intercompany and Intracompany Definitions

• Intercompany: Financial movements between subsidiaries, such as between sister subsidiaries or parent and child subsidiaries.
• Intracompany: Financial movements within a single subsidiary, often related to allocations or financial reclassifications.

Intercompany Transaction Scenarios

• Parent pays bills for child subsidiaries: Initially debits expense and credits cash. Intercompany entry debits intercompany AR and credits expense for the parent; child debits expense and credits intercompany AP.
• Child subsidiary self-pays and parent reimburses: Child initially debits expense and credits cash. Intercompany entry debits intercompany AR and credits cash for the parent; child debits cash and credits intercompany AP.
• Cash movements between subsidiaries: For example, Sub A debits intercompany AR and credits cash; Sub B debits cash and credits intercompany AP.
• Revenue distribution from cross-subsidiary sales: Initial entry debits trade AR and credits revenue/deferred revenue. Intercompany entry for the selling subsidiary debits revenue/deferred revenue and credits intercompany AP; product owning subsidiary debits intercompany AR and credits revenue/deferred revenue.
• Cross-subsidiary fulfillment: Refer to slide 7 for details.

ASC 810 Background

Consolidated financial statements present the operations and financial position of a parent and its subsidiaries as a single economic entity, requiring the elimination of intra-entity balances and transactions. This includes open account balances, security holdings, sales, purchases, interest, dividends, etc., ensuring no intra-entity profit or loss affects the consolidated results.

NetSuite Intercompany Features

• Automated Intercompany Management: Handles transactions like POs, SOs, journal entries, inventory transfers, and allocations.
• Intercompany Eliminations and Reporting: Manages and reports on elimination processes.
• Cross Charge Generation: Automatically charges subsidiaries for services rendered during the accounting period. Only applicable for inventory and project-related costs.
• Intercompany Netting: Settles open balances across subsidiaries and generates settlement statements.
• Intercompany Time and Expense: Automates the transfer of costs related to time entries and project expenses, available with Project Management and SuiteProjects functionality.
• Cross Subsidiary Fulfillment: Enables order fulfillment and returns across subsidiaries.

Native NetSuite Intercompany Functionality

• Intercompany Allocations: Distributes expenses or allocates revenue among subsidiaries.
• Elimination Journal Entries: Automatically generated during the Period Close Checklist process, eliminating the need for manual entries.
• Intercompany Inventory Transfers and Billing: Facilitates transactions and billing between subsidiaries without requiring a separate sales or purchase transaction.

Best Practices and Tips

• Account Mapping: Ensure each intercompany account has a corresponding offsetting account for balanced transactions.
• Regular Updates: Keep the Intercompany Preferences and other settings up to date to reflect changes in business operations.
• Audit and Compliance: Regularly review intercompany transactions for compliance with transfer pricing laws and other regulatory requirements.

Intercompany Reporting and Reconciliation

• Intercompany Reconciliation Report: Identifies and resolves unmatched or incorrectly matched transactions.
• Intercompany Elimination Report: Provides a detailed audit trail of all eliminations performed.

This document serves as a comprehensive guide to understanding and implementing intercompany transactions in NetSuite, ensuring accurate financial reporting and compliance with accounting standards.

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