Hi Robert,
I like how the related/intercompany stuff is at the bottom of the COA…..but I have never seen that in actual practice.
How does that work when preparing the FS? Separate section adjusting the income statement at the end?
Most times I have seen intercompany intermingled in with assets/liabilities and other.
James
Hi James,
One reason to keep them separate is that not every company has interco transactions. The companies that don't need them, can simply ignore them without their interfering with the rest of the COA.
For companies that do need to eliminate interco items in consolidation, keeping them totally separate simply makes the job easier.
How does it work?
One prepares one set of FSs without the interco items another with the interco item, compares them, and then eliminates the differences.
This is especially helpful when identifying the impact of interco transactions on items like inventory, which is not generally segregated like payable or receivables are.
I it also helpful for a comapny that uses simple accounting software not designed to produce consolidated reports like a lot of comapnies here in the EU do.
Best
Robert