Intercomany reconciliation is reconciling between the two
branches of the same company located in multiple locations.
where as one branch acts as seller to other branch when
some product is moved from Branch A to B branch.
Eg:- when Branch A sends some products to Branch B then in
this case. Branch A becomes the seller and Branch B becomes
Hence we need to reconcile between these two branches to
ensure the right figures appear on the financial statments
to the management
Transaction between subs of one parent co. are called inter
By reconciling inter co. we mean to assure and authenticate
the balances of booth subs i.e. wheather subs have booked
equal nos and quantity in their respective books or not.
Transaction that takes place between two entities of same
company is simply called as intercompany. Reconciliation of
inter company means that reconciling the books of both the
entities and making the balances to be zero by internal
adjustment,making sure that there is no any cash
transactions takes place between both the entires its just
an adjustment between two entities.
Intercommany Reconciliation is done for the paurchase or
sale of goods/services between two legal entities of a
Reconciliation is done to find out the difference of amount
posted in the books of both legal entities.
For example: B ltd (France) and C ltd (America) are two
legal entities of a parent company XYZ ltd.
Now, B sold good to C for $1,000.00 and recorded the entry
in their book. However, C ltd when recieved the goods,
recorded the transaction for $960.00 only because of change
While doing reconciliation it was found that there is a
difference of $40.00, so the system would record it as
adjustment entry for $40.00 to balance the ledger.
Intercompany (IC) reconciliation rules balance transactions
that occur between different entities in the company. IC
reconciliation adjusts for differences in the values that
are recorded by the buyer entity and the seller entity for
intercompany transactions. If, after adjustments for
currency differences, the recorded values do not match, IC
reconciliation creates balancing entries
Just to put in simple words about the Inter comapny
reconciliation process, it is a reconciliation between the
recievables and the payables among two branches of a
company to make sure there is no cash loss within the
Business entity and to make sure if they have any
discrepancies, the reason for the difference. Also Inter
company reconciliation keeps a record of the financial
status of a branch updated on a given period.
Not only confirming the balance. Its a book closure
activity enlightning the true and fair view of Balance
Sheet and Income Statement. E.g. I sold to my down
company. Will shown this is my outstanding income or
asset. Hence balance should make it to zero while
preparing the balance sheet and income statement
I think the question can best be answered with example :
Suppose Parent company has Branch in India as well in UK .
UK Branch engages India branch to work on a contract which
UK is having with its UK Client. At the end, Uk branch
would Invoice UK client say ie GBP 100 and share GBP 30
with India , India books Invoice GBP 30 to UK Branch @75 fx
on 16th of Month , India books would hit with 30 X 75=INR
2250 as Indian books needs to be prepared in INR.
At the end of Month UK branch shows 30 GBP as Payable ,but
at the end of Month if rate becomes 1GBP=INR80 , so india
books will show 28.125 GBP ( 2250/80) as receivables since
A/R is Balance sheet item and needs to be shown at Balance
So here comes Intercompany reconciliation , we need to show
30 GBP as payables in UK books and GBP 30 in Indian books .
So post a fx entry of INR 150 thereby Dr A/R account and Cr
Fx A/c or some control a/c so as to reflect A/R in India
books as INR 2400 ( equivalent @80 to GBP 30).
spose i am in gurgaon & employed with automotive
manufacturing co. i have to make some invoces for new
delhi, chennai, jaipur & chandigarh & london for a
component (rubber gasket) qty-2500 no @ of 120 per pc than
what should be payable amount for each customer after