Elimination is the process of negating the financial effect of at least two account balances that must have no financial impact under the umbrella of their common parent.
Required permission: Access Consolidation
To set up eliminations:
You must complete these steps before you can create elimination rules.
- Identify intercompany levels as trading partners.
- Identify levels in the organization on which eliminations should occur.
- Set up intercompany credit and debit accounts with the correct attributes, creating these accounts if necessary.
- Create one or more intercompany difference accounts.
To manage the elimination process:
- Create elimination rules.
- Review intercompany elimination activity.
Identify Intercompany Trading Partner Levels
Mark the appropriate levels in your organization structure with the Trading Partner attribute. When you do this, a special system attribute or dimension (depending on which elimination method you are using) is populated with a value equal to the name of the level. That level and all its descendants are identified as the same trading partner value as the marked parent. Check that all trading partner levels are named in a way that will make the attribute values clear and easy to use before starting the procedure described below.
To identify trading partners using attributes:
- Navigate to Modeling > Model Management > Levels.
- Select the level that will generate intercompany activity from the level hierarchy.
- Select the Trading Partner check box from the Level Details section.
- Click Save.
Administrators can change the trading partner label. Navigate to Administration> General Setup. The check box may have a different label than “Trading Partner.”
Identify the Elimination Level
Choose a level in your organization on which eliminations will occur. Often the elimination level is the level above the individual trading partners. If you have eliminations in multiple branches of your organization structure, you may need multiple elimination levels.
A single level cannot be both an intercompany trading partner and an elimination level. Depending on the complexity of your organization structure, you may need to create new levels to function as elimination levels.
The following shows that Operations level is a designated elimination level.
To identify an eliminations level:
- Navigate to Modeling > Levels.
- Select a level at which eliminations will occur.
- In the Level Details pane, select the Elimination level check the box from Elimination Settings. Note that the Elimination Trading Partner is not selected.
- Click to save the settings.
Set up Credit and Debit Accounts
You can add debit and credit accounts anywhere in your account structure that supports your business model. You must identify at least one debit and one credit account for eliminations – based on your elimination method. See Setting up Consolidations for more information the elimination method prerequisite.
If you are using the dimensions (splits) method of elimination, you only need one account of each type, and can then create splits within that account for each trading partner. If you are using the attributes method (the default), you will need an intercompany account of each type (credit and debit) for every trading partner.
The following is an example of an intercompany account for revenue when using the Accounts Attributes as the eliminations method:
You can associate Intercompany accounts with only one intercompany attribute value at a time. If you have multiple intercompany trading partners, you must create intercompany accounts for each trading partner. This example show intercompany Revenue accounts for two subsidiaries, Company A and Company B.
To select debit and credit accounts for eliminations:
- Navigate to Modeling > Model Management > General Ledger Accounts.
- Select the account from the Accounts hierarchy and edit the Account Details:
- Set Intercompany to Yes
- Use the Trading Partner drop-down menu to indicate which trading partner the account is associated with.
- Click .
Repeat these steps to create all the required accounts.
Set up an Intercompany Difference Account
You will also need a system account to serve as the difference account. When accounts in the process of eliminations are out of balance, this value (i.e., the difference between the accounts) is stored in the difference account.
For example, if EU Payables to the US is $100 but US Receivables from the EU is $105, the difference of $5 is stored in the difference account so that the elimination balances ($105 in elimination debits equals $105 in elimination credits).
To create a difference account:
- Navigate to Modeling > General Ledger Accounts.
If you want to place your difference account outside your GL account structure, click Manage your Custom Accounts and skip to Step 3.
- Select the account under which to place the difference account.
- Click New System Account.
- Enter the details for your subsidiary difference account. Set this account to Intercompany: Yes
Do not select a trading partner account attribute.
- Click Save.
- Click Done.
If you want visibility into the difference amounts, add your intercompany accounts to any sheets or reports where you view your eliminations.