Inter-company reconciliation
What is inter-company reconciliation? Matching the transactions between companies in the same group, so that what Company A says it owes Company B equals what Company B says it is owed.
In plain words
when one of your companies sells to another, the seller shows money to receive and the buyer shows the same money to pay. At month-end those two numbers should match to the rupee.
They often do not. One side has booked the invoice and the other has not, or the amounts differ because of freight, tax or a timing gap.
A worked example
| Case | Alpha Trading shows (to receive) | Beta Manufacturing shows (to pay) | Difference |
|---|---|---|---|
| Both sides booked | ₹12,00,000 | ₹12,00,000 | Nil |
| Beta booked ₹20,000 less, for freight not agreed | ₹12,00,000 | ₹11,80,000 | ₹20,000 |
| Beta has not booked the invoice yet | ₹12,00,000 | Nil | ₹12,00,000 |
Alpha invoiced Beta on 28 March. Only the first case is clean. The other two have to be sorted out before the group's March figures can be trusted. These are sample numbers.
Why it matters
- Time. Chasing these differences by phone and spreadsheet is what makes a group close take a week.
- Accuracy. Until the two sides agree and are cancelled out, group revenue and cost include sales the group made to itself.
- Audit. Unmatched balances between your own companies are among the first things an auditor asks about.
How Kinnow handles it
Kinnow keeps the two sides together from the start, so there is less to reconcile later.
- Posted as a pair. When an accountant records a sale between two of your companies, an entry lands in each company's books, linked by one record. Each line names the other company.
- A register with a status. The Intercompany screen under Finance lists every pair as Pending (only one side posted), Matched, Eliminated or Cancelled. Open a row to see both entries.
- A check at close. The month cannot close while a pair is half posted or the balances between two companies do not net to zero.
- Cancelling out. An administrator runs the elimination, which posts cancelling entries into a group consolidation company. A pair can be cancelled with a written reason, but not once it has been eliminated; reopen the period first.
The honest limit. Kinnow compares companies that are on Kinnow; a group company still on other software has to be brought across first. Elimination across companies that use different currencies is not in this release.
See two of your companies reconcile side by side. Send us a trial balance for each.
In Kinnow
Related terms
- Multi-entity consolidation: what happens after the pairs are cancelled out.
- Period close: where the balance check sits.
- Bank reconciliation: the same matching idea, against the bank.
Questions
Why do inter-company balances differ?
Usually one side has booked and the other has not, the amounts differ because of freight, tax or exchange rates, or the invoices were dated in different months. The register shows which of these it is by pair.
Do I need this if I have only one company?
No. With a single company there is no second company to trade with, so the register stays empty.
Does Kinnow correct a difference by itself?
No. It shows the pair that is half posted or out of balance. A person completes it, or cancels it with a written reason.
Group month-ends do not have to take a week. Request a demo and bring your last inter-company list.