Intercompany reconciliation is the process of verifying transactions that occur between two units or subsidiaries of the same parent company. It is a crucial process for businesses that have divisions, subsidiaries, franchises, or other entities within a larger conglomerate. Intercompany accounting is the process of tracking this financial activity, and it is necessary to make sure that the finances of the two entities, and most importantly, the larger parent company, are accurately documented and represented. The ultimate goal of intercompany reconciliation is to ensure that all the financial records are in sync and accurately represent the companys financial standing.

Key features of intercompany reconciliation include:

• Verification of transactions: Intercompany reconciliation involves verifying the transactions that occur between various legal entities owned by a single parent company.

• Elimination of intercompany transactions: The process involves confirming that the transaction amount is recorded correctly by both the parent company and the entity and then eliminating it from closing statements.

• Balancing out of intercompany transactions: The reconciliation process results in the balancing out of intercompany transactions, and balances will need to be reviewed, and reports are a product of the process.

Intercompany reconciliation can be performed manually or through automated solutions, depending on the organizations size and the number of entities involved. Manual intercompany reconciliation can be done in spreadsheets, but larger corporations that deal with thousands or even millions of intercompany transactions execute the reconciliation process daily and therefore have to invest in automation software.

Intercompany reconciliation allows a business to maintain the same level of accuracy for its intercompany transactions that it does for all other forms of financial activity. An effective intercompany reconciliation process helps the business avoid double entries in more than one of its subsidiaries or divisions. It allows the company to evaluate the full monetary value of all its transactions, to provide accurate financial statements, and to avoid disputes.