In a multi-company group, every intercompany transaction has two sides. One entity records a sale, a receivable, or a recharge. Another records the matching purchase, payable, or expense. In theory, the two sides always agree. In practice, intercompany differences are one of the most common reasons a group close runs late.
The differences are rarely large in total, but they are difficult to explain because the information sits in different companies, sometimes in different currencies, and often with different people responsible for each side. When the balances do not agree, consolidation stalls until someone works out why.
This guide explains why intercompany balances stop agreeing in Sage X3, how to reconcile them at month-end, and how to prepare them for elimination. It applies whether the group operates within one country or across several, as many of our clients in North America, the Caribbean, and international markets do.
Signs intercompany needs attention
- Intercompany receivables and payables between two entities do not agree at month-end.
- The same differences are carried forward from month to month.
- Consolidation is delayed while intercompany balances are investigated.
- Eliminations require manual adjustments that nobody can fully explain.
- Intercompany sales and purchases do not agree, even when receivables and payables do.
- Currency differences on intercompany balances grow over time.
How intercompany transactions flow in Sage X3
In a multi-company Sage X3 environment, each legal entity is set up as its own company, and other group companies are set up as customers and suppliers so that intercompany trade can be recorded like any other sale or purchase.
- Sales and purchases of goods between companies, sometimes with the purchasing documents created automatically from the selling side
- Transfers between sites that belong to different companies
- Services and recharges, such as management fees, shared costs, and payroll recharges
- Loans, funding, and settlements between entities
Each type needs to be recorded consistently on both sides. Our guide to multi-company accounting in Sage X3 covers how entity structure, charts of accounts, and intercompany trade are designed.
Why intercompany balances stop agreeing
Timing
The most common cause. One entity ships and invoices goods at the end of the month, and the receiving entity records them in the following month. Both sides are correct, but the balances do not agree at period end. Goods in transit between companies need to be identified and handled consistently.
One-sided entries
A recharge, accrual, or correcting journal is posted in one company but never recorded in the other. These differences are usually permanent until someone posts the missing side.
Pricing differences
The selling entity invoices at one price and the buying entity records a different price, perhaps from an outdated purchase order or an agreed transfer price that was not updated in both companies.
Currency
When entities use different currencies, each side may record the transaction at a different exchange rate, or revalue the balance using different rates or at different times. Over time, these differences accumulate even when the underlying transactions agree.
Account mapping
Intercompany transactions posted to general accounts rather than designated intercompany accounts, or to the wrong counterparty, are easily missed when balances are compared.
Disputes and adjustments
Returns, credit notes, quantity disputes, and quality claims between entities are sometimes resolved informally and recorded on only one side, or recorded at different values.
A month-end reconciliation sequence
- 1. Set an intercompany cutoff.
Agree a date, earlier than the general close, by which all intercompany invoices, recharges, and settlements must be posted in both companies.
- 2. Confirm transactions in transit.
Identify shipments and invoices sent before period end but not yet recorded by the receiving entity, and agree how they will be treated.
- 3. Pull balances by entity pair.
For each pair of companies, compare the receivable in one with the payable in the other, and intercompany sales with intercompany purchases.
- 4. Compare in a common currency.
Translate both sides to a single currency at the same rate so that currency differences are separated from real differences.
- 5. Match at transaction level.
For pairs that do not agree, match invoices and payments on each side to find the specific transactions causing the difference.
- 6. Classify each difference.
Record whether it is timing, a one-sided entry, a pricing difference, currency, mapping, or a dispute.
- 7. Correct and settle.
Post missing entries, correct pricing and mapping errors, and agree with both entities who will make each correction.
- 8. Confirm agreement before consolidation.
Re-run the comparison and confirm that remaining differences are explained and documented.
A custom report that lists intercompany balances by entity pair, side by side, in a common currency, makes this process far faster than comparing company reports individually. As with the other reviews in this series, the report itself should be checked against the ledgers before it is relied on.
Preparing for elimination
Once intercompany balances agree, they can be eliminated in consolidation. Typical eliminations include:
- Intercompany receivables and payables
- Intercompany sales and purchases, or sales and cost of sales
- Intercompany recharges and the matching expenses
- Unrealized profit in inventory, when goods sold between entities at a margin are still on hand in the buying entity at period end
Eliminations are only as reliable as the reconciliation behind them. If balances are forced to agree with an unexplained adjustment, the same difference will reappear the following month, often larger. Our month-end close checklist covers where intercompany matching and consolidation sit in the overall close calendar.
Preventing intercompany differences
- Use designated intercompany accounts, with a counterparty dimension or account for each entity.
- Agree transfer prices and keep them current in both companies.
- Post recharges and accruals in both entities at the same time, using a shared reference.
- Agree a single exchange rate policy for intercompany transactions and revaluation.
- Set an intercompany cutoff ahead of the general close.
- Settle intercompany balances regularly rather than allowing them to build up.
- Review intercompany balances monthly, not only at year-end.
When to bring in help
Outside help is usually worthwhile when intercompany differences are carried forward month after month, when consolidation regularly waits on intercompany, when the group has grown through acquisition and entities are set up inconsistently, or when multi-currency differences cannot be explained. In those situations, the work involves reviewing entity setup, intercompany flows, currency policy, and reporting together.
Intercompany questions
Why don't our intercompany balances agree?
The most common reasons are timing differences, entries posted in only one company, pricing differences, and exchange rates. Comparing the two sides by entity pair in a common currency usually shows which applies.
How should goods in transit between companies be handled?
Agree a consistent approach: either the receiving entity records the goods in transit at period end, or the difference is identified and explained as timing. What matters is that both entities follow the same rule every month.
How do currency differences affect intercompany reconciliation?
When entities use different currencies, each side may record or revalue the balance at a different rate. Comparing both sides in a common currency at the same rate separates currency differences from real differences.
What is unrealized profit in inventory?
When one entity sells goods to another at a margin and the goods remain in the buying entity's inventory at period end, the group has not yet earned that margin. It is eliminated in consolidation until the goods are sold outside the group.
How often should intercompany balances be reconciled?
Monthly, before consolidation. Regular reconciliation and settlement keep differences small and easier to trace.
Related reading
- Multi-company accounting in Sage X3
- Month-end close checklist for Sage X3
- Subledger to GL reconciliation
- Reconciling receipts not invoiced in Sage X3
- Multi-company and multi-entity operations
- Caribbean food and beverage multi-company case study
- Multi-entity finance consolidation case study
- Sage X3 finance and costing services
Need help with intercompany?
If intercompany differences are holding up your close, or consolidation depends on adjustments nobody can fully explain, a review of your entity setup and intercompany flows usually shows where the differences start. Schedule a discovery call to talk it through with a senior Sage X3 consultant.