In plain English
An intercompany transaction is any deal between two companies that belong to the same group — one subsidiary sells to another, the parent charges a management fee, or one entity lends money to a sibling. The problem: if you just added all the subsidiaries’ numbers together, you’d double-count those internal deals and make the group look bigger than it is. So at month-end you have to eliminate them. NetSuite OneWorld handles this: it records both sides of each internal deal, then cancels them out at consolidation so the group’s reports show only real, external business.
Same internal deals, a calmer close. OneWorld records and pairs both sides, then cancels them at consolidation so the group’s numbers stay honest.
Why does this matter?
Because intercompany errors are one of the most common causes of consolidated misstatements — inflated revenue, artificial profit, and balance sheets that won’t tie out. In a SOX, PE-backed, or pre-IPO world, auditors look hard at intercompany. Done by hand, it eats days of every close chasing why Entity A and Entity B disagree. Set up properly in NetSuite, the system records both sides, flags what to eliminate, and posts the elimination entries for you — turning a recurring fire drill into a checklist task.
Setting it up, in five steps
You don’t just “turn on intercompany.” A clean setup is a sequence: switch on the features, build the elimination structure, create the right accounts and entities, record transactions correctly, then eliminate at close.
Enable → elimination subsidiaries → accounts & entities → record → eliminate at close. The expert version and the step-by-step companion have the exact menus and settings.
The jargon, in plain English
A few terms unlock the whole topic:
OneWorld
NetSuite’s multi-subsidiary edition. No OneWorld, no intercompany.
Elimination subsidiary
A non-trading “dummy” subsidiary where the cancel-out entries are posted at close.
Intercompany accounts
GL accounts (like IC A/R and IC A/P) flagged with Eliminate Intercompany Transactions.
Representing entities
Intercompany customers & vendors that stand in for each subsidiary — often prefixed IC.
Automated IC Management
The feature that auto-creates paired transactions and elimination journals.
Elimination
The month-end step that cancels internal deals so consolidated reports show only external activity.
CTA-E
The Cumulative Translation Adjustment-Elimination account where FX timing differences land.
What to remember
- Intercompany needs OneWorld and at least two subsidiaries in a hierarchy.
- You need elimination subsidiaries in place before enabling Automated Intercompany Management.
- Always use the intercompany entities/accounts — generic customers or accounts break the auto-pairing.
- Automated Intercompany Management can’t be turned off once enabled — decide deliberately and test in sandbox.
Quick summary: NetSuite intercompany transactions are financial activity between subsidiaries of the same group — intercompany sales and purchases, inventory transfers, loans, management fees, and cost allocations — all of which must be eliminated at consolidation so group statements reflect only external business. NetSuite OneWorld records both sides of each transaction, and the Automated Intercompany Management feature pairs them and generates elimination journal entries at period close. A correct setup means OneWorld plus the right features, elimination subsidiaries in the hierarchy, dedicated intercompany accounts, representing entities, disciplined transaction entry, and a reconcile-then-eliminate close. This guide walks through each in the order you should build them.
What are intercompany transactions?
An intercompany transaction is any exchange of value between two entities under common control. The accounting challenge is that the same activity must appear on each entity’s books but net to zero at the group level — otherwise you double-count revenue and inflate assets. NetSuite’s approach: record both sides using dedicated intercompany accounts and entities, then reverse them with elimination journal entries posted to a non-operating elimination subsidiary. The common categories are intercompany sales/purchases, inventory transfers, and non-transactional items like management fees, cost allocations, and loans.
Prerequisites and features
Intercompany functionality lives in NetSuite OneWorld and requires at least two subsidiaries in a parent-child hierarchy. Enable the following before you start:
- Basic accounting — Accounting, A/R, A/P, and Accounting Periods.
- Intercompany Framework — unlocks cross-charging, cross-subsidiary fulfillment, and netting.
- Automated Intercompany Management (AIM) — auto-creates paired transactions and period-end elimination journals (Setup > Company > Enable Features > Accounting > Advanced Features).
- Optional — Intercompany Cross-Charges, Automate Intercompany Drop Ship, Inventory Cross-Subsidiary Fulfillment, and Multi-Book if you eliminate per book.
Elimination subsidiaries and hierarchy
Before enabling AIM, your hierarchy needs one or more elimination subsidiaries. Create one as a child of any parent that has children, set its currency to the parent’s base currency, and check the Elimination box on the subsidiary record. Only journal entries post to it, and those entries don’t affect the operating ledger — they exist purely to reverse intercompany balances at the consolidated level. Foreign-currency timing differences from elimination accumulate in the system-generated CTA-E account. (Reference: Elimination Subsidiaries.)
Intercompany accounts and entities
Two building blocks make pairing and elimination work:
- Intercompany accounts — GL accounts with the
Eliminate Intercompany Transactionsbox checked. Best practice is dedicated intercompany A/R and intercompany A/P accounts (these can only record elimination candidates), plus intercompany revenue/expense accounts if you report internal activity separately. Don’t reuse existing A/R or A/P with accumulated third-party balances. (Reference: Intercompany Accounts.) - Representing entities — intercompany customers and vendors that stand in for each subsidiary. With AIM and the prerequisites met, NetSuite can auto-generate them; otherwise create them manually. Prefix names with
ICso they’re unmistakable in dropdowns.
Recording intercompany transactions
There are two main paths. For goods and services, enter an intercompany sales order and let NetSuite generate the paired purchase order in the buying entity (sales orders and purchase orders are nonposting; elimination is identified when they’re invoiced and billed). For non-transactional activity — management fees, cost allocations, loans, corrections — use an advanced intercompany journal entry, where each line carries a subsidiary, balance is enforced per subsidiary, and the Auto Balance button adds the offsetting due-to/due-from lines.
# Advanced Intercompany Journal Entry — management fee
# US Parent charges UK Subsidiary 10,000 USD
From (US Parent) Dr Intercompany A/R (US) 10,000
Cr Management Fee Income 10,000
To (UK Sub) Dr Management Fee Expense 10,000 (revalued to GBP)
Cr Intercompany A/P (UK) 10,000
# balance enforced by subsidiary; Eliminate box flags the IC lines
# FX timing differences post to CTA-E at elimination"Discipline at entry is the whole game. Use the intercompany customer, the intercompany vendor, and the intercompany account every time — the moment someone books an internal deal against a generic entity, the auto-pairing breaks and you're back to spreadsheets."
(Reference: Making Advanced Intercompany Journal Entries.)
Automated elimination at period close
At period end, Eliminate Intercompany Transactions is the last task in the Period Close Checklist — and you can only run it after Revalue Open Foreign Currency Balances and Calculate Consolidated Balances, so FX adjustments are already calculated. NetSuite evaluates the activity in your intercompany accounts, then posts elimination journal entries to the elimination subsidiary to cancel the internal revenue, expense, receivables, and payables. One caveat to set expectations: NetSuite does not eliminate intercompany inventory profit automatically — that still needs manual adjustment or advanced configuration. (Reference: Intercompany Elimination Overview.)
Reconciliation and reporting
Run the Intercompany Reconciliation report before elimination (Reports > Financial > Intercompany Reconciliation). Its five sections surface mismatches — unlinked orders and returns, mismatched amounts, and more — so you can fix them before posting. After elimination, the Intercompany Elimination report shows source transactions and elimination lines grouped by elimination subsidiary and by sales-order/purchase-order pair, with links to each elimination journal entry. (References: Intercompany Reconciliation Report and Intercompany Elimination Report.)
Common pitfalls
- Generic entities — booking internal activity against a normal customer/vendor or account stops NetSuite recognizing it as intercompany; lock entities down or train users hard.
- Imbalanced journals — an intercompany journal that’s out of balance by subsidiary won’t eliminate properly.
- Reusing old accounts — flagging an existing account as intercompany does not auto-mark its historical transactions for elimination.
- Inventory profit — not eliminated out of the box; plan a manual or configured approach.
- Skipping reconciliation — running elimination on mismatched data just buries the problem in the close.
Key takeaways
- Intercompany needs OneWorld, a subsidiary hierarchy, and the right features enabled.
- Build elimination subsidiaries before enabling Automated Intercompany Management — which can’t be undone.
- Dedicated intercompany accounts and representing entities are what make pairing and elimination work.
- Use paired sales/PO for goods, advanced intercompany journals (with Auto Balance) for fees and allocations.
- Reconcile first, then run Eliminate Intercompany Transactions as the last period-close task.
If your intercompany close is a monthly fire drill, talk to one of our engineers — we’ll design the elimination structure, accounts, and controls so it runs as a checklist task. You can also browse our other NetSuite articles.
Frequently asked questions
Do I need NetSuite OneWorld for intercompany transactions?
Yes. Intercompany functionality is part of NetSuite OneWorld, which manages multiple subsidiaries in a single account. You need at least two subsidiaries in a parent-child hierarchy, with Accounting, A/R, A/P and Accounting Periods enabled, plus the Intercompany Framework and, for automation, the Automated Intercompany Management feature. Without OneWorld there are no subsidiaries to transact between, so there is nothing to eliminate at consolidation.
Does NetSuite eliminate intercompany transactions automatically?
With the Automated Intercompany Management feature enabled, NetSuite generates elimination journal entries automatically during the period close. It evaluates the activity in your intercompany accounts and posts entries to an elimination subsidiary so the consolidated statements show only external activity. Without that feature, you must track intercompany activity and create and post elimination journal entries manually. Note that intercompany inventory profit is not eliminated automatically out of the box.
What is an elimination subsidiary in NetSuite?
An elimination subsidiary is a special, non-trading subsidiary you create as a child of a parent that has children, with its currency set to the parent’s base currency and the Elimination box checked on the subsidiary record. Only journal entries post to it, and those elimination entries don’t affect the operating general ledger — they exist to reverse intercompany balances at the consolidated level. You need an elimination subsidiary in place before enabling Automated Intercompany Management.
What is the difference between an intercompany journal entry and a standard journal entry?
A standard journal entry posts to a single subsidiary. An intercompany (or advanced intercompany) journal entry spans multiple subsidiaries: each line carries a subsidiary, NetSuite enforces balance by subsidiary, and it creates the offsetting due-to/due-from entries between entities. Advanced intercompany journal entries also offer an Auto Balance button and an Eliminate box to flag lines for period-end elimination. Use them for management fees, cost allocations, loans and corrections.
Can you disable Automated Intercompany Management once it's enabled?
No. The Automated Intercompany Management feature can’t be disabled after it’s enabled, even if you haven’t created any intercompany entities or transactions yet. Because enabling it also adds the CTA-E account, the period-close elimination task, the Eliminate box on journal lines and representing-entity forms, you should turn it on deliberately — ideally during implementation — and test in a sandbox first.