Intercompany and Intracompany in GL

Intercompany and Intracompany in GL:
In R12 we have modified concepts to track the accounts for Intercompany and Intracompany Accounts.
Note: When compare to 11i the Intercompany is now Intracompany in R12 and there is a new concept introduced for
Intercompany in R12.
Intercompany transactions are the Transactions between the balancing segments across legal entities.
Intracompany transactions are the Transactions between the balancing segments within the same legal entities or
ledger.
Illustration on Intercompany and Intracompany as below:
To understand the concept of Intercompany and Intracompany further more let us consider our illustration as below
for Intercompany:
Let us consider our Ledger as GSSTATA PL
Considering the above illustration if there are any transaction between balancing segment (COMPANY) 01 and 02
then it is intercompany transaction. If the transactions are between the balancing segment 03 and 04 then it is
intracompany transaction.
Going further if the balancing segment 01 purchases Machinery from the 3 rd Party (Say A) and the balancing segment
02 sells the Machinery to a 3rd Party (Say B). Now 01 is liable to pay money to A for this the transaction would be
Machinery A/C
To Payables A/C
And also balancing segment 02 has to receive cash from 3 rd Party B so the transaction would be
Machinery A/C
To Receivables A/C
And apart from the above transaction there is also a exchange of the same machinery between 01 and 02, where in 02
is liable to pay 01 and 01 will be receiving funds from 02, now to avoid the confusion and to differentiate the
accounting transaction between 01 and 3rd Party (Say A) and 01 and 02 transaction and 02 and 3rd Party (Say
B). Now accounts can be created manually between 01 and 02 and also can be automated (Enabling the Inter
Company setup). To automate the creation of accounts between 01 and 02 we need to setup the Inter company
accounts in the application so that this will guide the application to generate separate accounts for the transaction
between 01 and 02 adding to the transaction between 01 and 3 rd Party and 02 and 3rd Party which is created earlier.
For this the system automatically creates the accounts between 01 and 02 balancing segment (COMPANY) when there
is a transaction between them using the accounts IC Receivables and IC Payables accounts that we need to define.
Enable the inter company flexfield qualifier to the company segment at our Chart of accounts
Navigation: Setup -> Financials -> Flexfield -> Key -> Segment
Application: General Ledger
Title: Accounting Flexfield
Code: GSSTATA (Chart of Account)
Unfreeze and then navigate to the segments, highlight Company and enable Intercompany Segment.
Later Freeze and COMPILE.
Next Step would be to define intercompany payables and intercompany receivables account at our Natural Account
(Account Segment)
Navigation: Setup -> Financials -> Flexfield -> Key -> Values
Structure: GSSTATA (Chart of Account)
Segment: Account
Click on FIND
And navigate to the Qualifier Tab and then select the Account Type as LIABILITY.
The next step would be to enable the Balance Intercompany Journals Option at the Ledger
Navigation: Setup -> Financials -> Accounting Setup Manager
Search for the ledger: GSSTATA PL
Click on Update Accounting Option, under the Primary Ledger Section for the ledger option for the
Ledger GSSTATAPL click on Update
Goto step 2 of the ledger Option, under the Journal Processing Section enable “INTERCOMPANY BALANCING
JOURNAL”.
Going further we need to define the Intercompany Relationship and Intercompany Account to account for the
transaction across Legal Entities.
Under the Primary Ledger Section.
Search for Intercompany Account and click on UPDATE.
Under the Legal Entity section for the GSSTATA MOTORS as Transaction Legal Entity, Click on UPDATE and in
the navigated screen ADD ROW
Note: Change the Start Date to the Period APR 12 as the Default date would be System date.
Finally Click on Apply
Similarly do the same process as above for GSSTATA CONSULTANCY as Transaction Legal Entity. (ADD
ANOTHER ROW)
Note: To account any transactions between GSSTATA MOTORS and GSSTATA CONSULTANCY be need to
define the relationship between GSSTATA MOTORS and GSSTATA CONSULTANCY and also a relationship and
vice versa (Say between GSSTATA CONSULTANCY and GSSTATA MOTORS)
After defining all the relationships and intercompany accounts, change the status to COMPLETE and click
on DONE.
Note: we can edit the process of defining the intercompany relationship any time just by clicking on update. To delete
the relationship just mention the end date and add another relationship.
The relationships between the balancing Segments can be defined as One To Many relationship and also Many To
Many relationships this can be understood well with the below illustration.
The relationship between GSSTATA MOTORS and GSSTATA CONSULTANCY can be created in the below mentioned
ways.
Consider GSSTATA MOTORS as Transaction Legal Entity
While selecting the Transaction Balancing Segment as 01 in the

LOV (List of Values) we can also find 02 and 03 as the transaction balancing segments
Now consider GSSTATA CONSULTANCY as Transaction Legal Entity to define the relationship vice versa as well.
Above is the illustration of One To One relationship.

Relationship can also be created as One To Many relationship as below
Also a Many To Many relationship can be defined as below;
Once all the relationships are defined and also the Status is changed to COMPLETE we shall test.
Create a Journal for testing whether our setup is done correctly as below
Navigation: Journals -> Enter
Name: IC JV1
We create the account as below
DEBIT CREDIT
01.00.00.00.1500 (Machinery Account) 200000
Now we POST the above Journal, though the Journal entry is not balanced (Debit account total is not equal or
balanced with Credit account), this is possible to post as we have enabled the Intercompany setups.
Once the Journal is POSTED a Concurrent Program runs “POSTING: SINGLE LEDGER”
Now if we re-check the journal IC JV1 we see that the application has added two additional lines as below:
DEBIT CREDIT
01.00.00.00.3040 (IC Payables Account) 200000
01.00.00.00.1040 (IC Receivables Account) 200000
Finally there would be 4 lines in the Journal IC JV1
DEBIT CREDIT
If we observe the Journal is now balanced as well.
Going further with Intercompany and Intracompany we shall be discussing more on the Intracompany and the
setup’s required for setting up Intracompany.
The above setup’s that were defined for Intercompany (All the setups defined before defining the Intercompany
Relationships) hold good for Intracompany as well. Apart for the Intercompany setups there are some other setup’s
adding to that which would be defined.
Before actually defining the setups for Intracompany we now understand as to why do we need those setup’s first.
Now if there are transactions between balancing segment 02 and 03 then they are Intercompany Transaction and if
there are transaction between 03 and 04 then they are Intracompany Transactions. Now if we have a requirement to
report the balances or total of all the intercompany receivables and intercompany payables at the legal entity level say
GSSTATA FINANCE and not considering the transactions that involved other legal entity say GSSTATA
CONSULTANCY (Say: As you are aware that there are transaction between 02 and 03 and also between 03 and 04
now to report the transactions that happened only between 03 and 04 the concept of Intracompany comes into
picture with further setups for Intracompany are required).
Below are some important points pertaining to Intracompany that’s needs to be considered:
1. To account for Intercompany payables and intercompany Receivables (IC Payables and IC Receivables) at the
legal entity level we need to use the CLEARING Company account.
2. Clearing Company is used to account only the Intercompany payables and intercompany Receivables accounts
3. We have to maintain a separate clearing company for each of the legal entity to account for IC Payables and IC
Receivable.
4. Defining a clearing company is optional.
5. Clearing Company is used only for Intracompany transactions.
As mention let us also consider the following setup of intercompany
1. Enable the Intercompany flexfield Qualifier
2. Define intercompany Payables and Receivables
3. Enable balancing Intercompany Journal
Adding to above setup we need to define the below setups
Adding the Clearing Company
Navigation: Setup -> Financials -> Flexfield -> Key -> Values
Structure: GSSTATA (Chart of Account)
Segment: Company
Click on FIND
Note: Check if there are 2 balancing segment value under a legal entity

Next would be assigning the clearing company to the legal Entity
Navigation: Setup -> Financials -> Accounting Setup Manger -> Accounting Setup
Search for the ledger: GSSTATA PL
Add the balancing segment value 04 (If added new) and 10 to the ledger and mention the start date to APR 12 as by
default the date would be System Date.
Now define the Intracompany Balancing Rules.
Under Primary Ledger Section
Search for INTRACOMPANY BALANCING RULES, click on UPDATE.
To define the rule for GSSTATA FINANCE legal entity define rule and click on Create Rule.
Source: OTHER (For specific Sources as here we can mention some specific sources also)
Category: OTHER
Debit Balance: ALL OTHER (This would display the LOV of all the balancing segment Values which is associated to
the legal entity)
Credit Balance: ALL OTHER
Debit Account:
COMPANY: 03
DIVISION: 00
LOCATION: 00
DEPARTMENT: 00
ACCOUNT: 1040 (IC Receivables Account)
Credit Account:
COMPANY: 03
DIVISION: 00
LOCATION: 00
DEPARTMENT: 00
ACCOUNT: 3040 (IC Payables Account)
Note: We no need to define the rule in reverse order (Vice Versa) as we have done in case of Intercompany.
The system would automatically create the accounts for all the other Balancing Segment values say 04.00.00.00.1040
and 04.00.00.00.3040.
Navigate to the next Tab OPTION.
(Here we define the Clearing Company)
Default Option: Default Clearing Balance Segment Value is to be selected (The other option would be Manual,
in this case the Clearing company account should be created manually for account the payables and receivable at the
legal entity level)
Default Clearing Company Segment: 10
Then APPLY, change the status to COMPLETE and click on DONE

Now to test the changes we create a journal
Navigation: Journals -> Enter
Journal Name: Intra JV1
We create the account as below
DEBIT CREDIT

Now when we post it gets posted successfully.
The new lines that are added by the application for the Journal Intra JV1 are as below as we have enabled the
Intracompany setup would be
DEBIT CREDIT
10.00.00.00.3040 (Clearing company Account) 20000
10.00.00.00.1040 (Clearing Company Account) 20000
And the journal is now balanced.
Note: All the above illustration is considering that the Ledger GSSTATA PL is created earlier before actually
defining the Intercompany and Intracompany accounts.

Intercompany and Intracompany in GL

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Intercompany and Intracompany in GL:

While selecting the Transaction Balancing Segment as 01 in the

Above is the illustration of One To One relationship.

Note: Check if there are 2 balancing segment value under a legal entity

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