---
title: "What is intercompany transaction?"
description: "Intercompany Transaction explained in plain English: definition, how it works, an example, and how it appears in QuickBooks and Xero."
url: https://ledgerbpo.com/glossary/intercompany-transaction/
updated: 2026-09-11
publisher: LedgerBPO (SS Support Network LLC)
language: en-US
---

# What is intercompany transaction?

Glossary

An intercompany transaction is a sale, loan, expense allocation or transfer of funds or goods between two entities under common ownership, tracked separately and eliminated when the group later prepares consolidated financial statements.

Updated September 2026

## How intercompany transaction works

Related entities, such as a parent company and its subsidiary, often sell to each other, share costs or lend funds back and forth as part of normal operations. Each entity records its own side of the transaction in its own books, so the same activity shows up twice across the group, once as a sale or loan on one side and a purchase or borrowing on the other.

Because both entities recorded the same event, intercompany balances must match exactly and be tracked using consistent account codes across every entity in the group. When the group consolidates, these matched amounts are eliminated so the combined financial statements show only transactions with outside parties, not activity the group simply had with itself.

## Example

A parent company sells $50,000 of inventory to its subsidiary during the year. The parent records $50,000 in intercompany sales and the subsidiary records $50,000 in intercompany purchases. At month end, both balances are confirmed to match exactly, and when the group prepares consolidated statements, the $50,000 sale and purchase are eliminated so consolidated revenue does not double-count activity that occurred within the group itself.

## Intercompany Transaction in QuickBooks Online vs Xero

Not software-specific. QuickBooks Online and Xero do not natively consolidate multiple entities, so groups with intercompany activity often layer a tool such as Syft Analytics or LiveFlow on top to track and eliminate intercompany balances between entities.

## Common mistakes

- Each entity records its side of an intercompany transaction using a different account code, making the two balances impossible to match cleanly at close.
- Intercompany balances are left unreconciled for several periods, letting small discrepancies accumulate until they become difficult to trace back to their original source.
- Intercompany eliminations are forgotten when consolidated statements are prepared, double-counting revenue or expense that occurred only within the group itself.

## Why it matters

Intercompany transactions have to match exactly across entities, because any mismatch carries straight through into consolidated financial statements and overstates the group's real revenue or expenses. For groups with multiple related entities, unreconciled intercompany balances can mislead an owner, lender or investor reviewing consolidated results about the group's true size and performance. Tracking and eliminating these transactions every period keeps consolidated reporting accurate.

## Related terms

- [Consolidation](https://ledgerbpo.com/glossary/consolidation/)
- [Close Package](https://ledgerbpo.com/glossary/close-package/)
- [Financial Statements](https://ledgerbpo.com/glossary/financial-statements/)
- [All terms](https://ledgerbpo.com/glossary/)

## How LedgerBPO handles intercompany transaction

We track intercompany balances across entities each period, confirm both sides match before close, and prepare the elimination entries your consolidated financial statements need, catching mismatches before they carry forward into the next period.

[Due-to and due-from balances that net to zero](https://ledgerbpo.com/services/intercompany-reconciliation/)

Next step

## Books closed. Invoices paid. Every month.

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Source: https://ledgerbpo.com/glossary/intercompany-transaction/ · Contact: https://ledgerbpo.com/contact/ · Full site map for agents: https://ledgerbpo.com/llms.txt