Intercompany Account Balance Troubleshooting

Techniques for getting NetSuite to correctly auto-eliminate intercompany balances

Auto-Elimination: Background

NetSuite’s Automatic Intercompany Elimination feature can really ease the burden for multi-subsidiary period close. The tool finds balances to eliminate based on a transaction line field called “eliminate”, and reverses any impact of those lines into an “Elimination” subsidiary. I’ve recently written an article describing this feature and how to analyze amounts that were eliminated. Here is a list of some resources that may be helpful in understanding how the tool works:

My Previous Article: Reconcile NetSuite Auto-Elimination Amounts

SuiteAnswers 20121: Intercompany Elimination Overview

SuiteAnswers 64447: Running Intercompany Elimination

SuiteAnswers 64444: Key Points for Running Intercompany Elimination

Challenge: Clean Up Historical Intercompany Amounts

We recently were contacted by a client that was having difficulty understanding why intercompany account balances were not clearing out each period even though they were using the Auto-Elimination feature in NetSuite. After some analysis using SuiteQL queries to search for fields not available in Saved Searches, we were able to get the root of the problem and fix it, so that going forward the balances should clear out completely without manual work.

Solution (in short): reverse, re-import, revalue, eliminate

The causes of the non-eliminating amounts were:

1. Transactions that did not have the “Eliminate” checkbox “flagged” for elimination
2. Currency revaluations in the intercompany accounts, likewise not flagged for elimination
3. Manual Journal Entries into elimination subsidiaries that couldn’t always offset foreign subsidiaries’ intercompany amounts (due to currency translation).

In order to fix the problem, we needed to do the following:

1. Find the sources of Currency Revaluation transactions that were not flagged for Elimination, and reverse the impacts in both the Base Currencies and Foreign currencies
2. Re-import those balances, using the same exchange rates, but this time, flagged for elimination.
3. Find the remaining non-flagged for elimination amounts and do the same (reverse and re-import, flagged for elimination)
4. Run Currency Revaluation for the first available open period, verify that no Currency Revaluations remained that impacted intercompany accounts not flagged for elimination
5. Reverse the impact of any manually-booked elimination entries
6. Run Auto-elimination; verify zero balance in the consolidated financial statements for the intercompany accounts

Now let’s take a look under the hood to understand how the “eliminate flag” works, and why certain intercompany accounts won’t just automatically eliminate:

Intercompany Elimination and Account Types

One of the key considerations in running Auto-Elimination is the different treatment of Elimination based on Account Type. The Account Type selected on the GL Account record is a consequential decision to make when each account is set up, because the Account Type has a significant impact on all sorts of transactions and processing in NetSuite, and the Intercompany Elimination process is one example.

In order to flag transaction lines for Elimination, the “ELIMINATE INTERCOMPANY TRANSACTIONS” checkbox field must be checked on the account record. Yet, even when this is checked, the behavior of Auto-Elimination based on that flag will still depend on the Account Type. Here is a table of differences to Auto-Elimination based on Account Type:

Account Type → ——————————- Behavior ↓	Accounts Receivable/ Accounts Payable	Income / COGS / Expense / Equity	Other Assets / Other Liabilities (Current or Long-Term)
“Eliminate” can be selected or deselected at the Transaction Line level?	No – tagged by default, cannot be “un-tagged”	Yes	Yes
Forces a “Representing Subsidiary” entity as Customer/Vendor?	Yes	No entity required	No entity required
Links Elimination Entries back to Source Transactions?	Yes	Yes	No
Elimination JE is based on Summary Amounts / Specific Transactions?	Depends on “Journal Entry Summarization” Preference	Depends on “Journal Entry Summarization” Preference	Always Summarized
Elimination JE respects original Class, Department, Location?	Yes	Yes	No
Elimination JE Auto-Reverses in Next Period	Yes	No	Yes

Intercompany “Other Asset” or “Other Liability” accounts

Often, companies will opt not to use an Accounts Receivable or Accounts Payable type of account for Intercompany balances. Sometimes, this is to maintain natural netting of amounts when a subsidiary has both payables and receivables to/from a different subsidiary. (Side note: NetSuite’s Intercompany Netting feature accommodates this requirement and is worth considering). Using non-A/R and non-A/P accounts for Intercompany presents some challenges with period end automatic elimination. As can be seen from the chart above, non-A/R and non-A/P accounts need the “Eliminate” flag checked on Transaction Lines in order to auto-eliminate. Thus, if the practice of flagging transaction lines was not in place historically, it can be quite challenging to fix so that balances in these accounts are eliminated in consolidated financial reports, as was observed in the client situation described above.

Additional Complication – Currency Revaluation and Elimination Flag

Another interesting observation of the Elimination flag is that it exists on Currency Revaluations, although there doesn’t seem to be a way to expose it on the currency revaluation transaction forms. The determinant of whether the field will be checked on Currency Revaluations depends on the source transactions that are subject to Currency Revaluation. If the source transactions in a non-base currency are flagged for elimination, the currency revaluation will likewise be flagged for elimination. (For additional info regarding Currency Revaluation, see my previous article, “Understand NetSuite Currency Translation”).

Best Practices

When encountering accounting cleanup projects such as this one, I like to help clients think of how to best avoid errors and costly manual work. When it comes to Intercompany Elimination, if a non-A/R, non-A/P account is used, it would be good to create a simple script or workflow that forces the user to check the “eliminate” flag before saving. Normally, a saved search alert would be a good, low-tech solution, but in this case the field is not available in searches, so a little more development work would be needed to stay in control. If you would like to learn more about best practices for Intercompany Consolidation, feel free to reach out!