Description
In order to reconcile intercompany transactions that do not fully eliminate due to different exchange rates being used at different Locations, SoftLedger will automatically book end of period elimination adjustment journal entries when you close an accounting period.
There are several scenarios where intercompany transactions do not fully eliminate. For example, both GAAP and IFRS allow companies to use weighted average exchange rates in translating Income Statement line items of subsidiaries to the consolidated parent's reporting currency. In doing so, intercompany transactions could be translated at two different exchange rates at the subsidiary level resulting in intercompany balances not netting to zero at the consolidated level. The end of period elimination entries fix problems like this, ensuring all intercompany transactions have been properly eliminated.
Note: If your SoftLedger tenant has the same reporting currency across all Locations or if you do not operate with intercompany elimination entries, this article and setup is not relevant for you.
How it works
When there are intercompany entries that do not net out to zero due to different FX rates used, the EOP Elimination process books an amount to the elimination column to true-up any differences and ensure all intercompany transactions net to zero. The delta of the EOP Elimination process is booked to the user selected EOP Elimination Clearing Account (see setup below).
System Setup
To be sure the system can automatically book these entries, the two elements of set up are:
Create a specific End of Period Elimination Ledger Account to be used in the system generated EOP adjustment entries (more details on how this is used below)
Once that Ledger Account is created, determine where that Ledger Account should be mapped in your financial statements (if different than the standard report group)
EOP Elimination Ledger Account
This Ledger Account is generally set up as an Equity Type Ledger Account in the Equity Report Group. This Ledger Account should ONLY be used by the system for these system generated entries. See a sample of a Ledger Account set for this
Set this Account under Financial Close
Once you have created the Ledger Account, set this in the Financial Close section in Settings>Accounts:
Warning: When this Account is not set, and there are elimination entries across locations with different reporting currency to the journal posted currency, the accounting period will fail to close and produce an error until this ledger account is set.
Map the newly created Ledger Account (optional)
Once the Ledger Account is created, determine if the Ledger Account balance should be mapped differently than the Report Group. In the example Ledger Account, the Report Group is Equity, so this is mapped within the Equity Report Section by default, but can be adjusted in the Edit Layout section on any Financial Statement:
Important Considerations:
To easily find the journal lines resulting from the EOP Elimination process, you can search on the Reference field for
Reference = End of Month Elimination Entry, and/or search for the selected Elimination Clearing Account.If this Elimination Clearing Account is not set in the Settings>Accounts: Financial Close section, then there will be an error preventing the close of an Accounting Period so long as there are elimination lines that warrant this treatment. See error returned below:
