Intercompany Elimination Journal Entries Examples

 Intercompany elimination journal entries are necessary to remove the effects of transactions between related companies when preparing consolidated financial statements. These entries prevent double-counting and ensure that the consolidated financial statements reflect only the transactions with external parties.

Example Scenario

Assume the following transactions between Company A (Parent) and Company B (Subsidiary):

1. Company A sold goods worth ₹100,000 to Company B.
2. Company B paid ₹100,000 to Company A for the goods.
3. Company A provided a loan of ₹50,000 to Company B.
4. Company B paid ₹5,000 interest to Company A on the loan.

Elimination Entries

1. Eliminate Intercompany Sales and Purchases

   To eliminate the sale of goods from Company A to Company B:

   Journal Entry:

   Date	Particulars	Debit (₹)	Credit (₹)
   2024-06-30	Sales A/c (Company A)	100,000
   	To Purchases A/c (Company B)		100,000
   	(Being intercompany sales eliminated)

   
   

2. Eliminate Intercompany Receivables and Payables

   To eliminate the receivables in Company A and the payables in Company B:

   Journal Entry:

   Date	Particulars	Debit (₹)	Credit (₹)
   2024-06-30	Intercompany Payables A/c (Company B)	100,000
   	To Intercompany Receivables A/c (Company A)		100,000
   	(Being intercompany receivables and payables eliminated)

3. Eliminate Intercompany Loan and Interest

   To eliminate the loan provided by Company A to Company B:

   Journal Entry:

   Date	Particulars	Debit (₹)	Credit (₹)
   2024-06-30	Intercompany Loan Payable A/c (Company B)	50,000
   	To Intercompany Loan Receivable A/c (Company A)		50,000
   	(Being intercompany loan eliminated)

   
   

   To eliminate the interest on the loan paid by Company B to Company A:

   Journal Entry:

   Date	Particulars	Debit (₹)	Credit (₹)
   2024-06-30	Interest Income A/c (Company A)	5,000
   	To Interest Expense A/c (Company B)		5,000
   	(Being intercompany interest eliminated)

   
   

Summary

1. Eliminate Intercompany Sales and Purchases:

   • Debit Sales A/c (Company A)
   • Credit Purchases A/c (Company B)

2. Eliminate Intercompany Receivables and Payables:

   • Debit Intercompany Payables A/c (Company B)
   • Credit Intercompany Receivables A/c (Company A)

3. Eliminate Intercompany Loan:

   • Debit Intercompany Loan Payable A/c (Company B)
   • Credit Intercompany Loan Receivable A/c (Company A)

4. Eliminate Intercompany Interest:

   • Debit Interest Income A/c (Company A)
   • Credit Interest Expense A/c (Company B)

These elimination entries ensure that the consolidated financial statements reflect only the transactions with external parties and do not double-count the transactions within the group.