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Elimination Rules

Elimination rules define how intercompany transactions and balances are automatically removed during consolidation. When a parent company consolidates its subsidiaries, transactions between group members must be eliminated to avoid overstating revenues, expenses, assets, and liabilities.

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Why Elimination is Required

When companies within a consolidation group transact with each other, these transactions appear on both companies’ books:
  • Intercompany sale: Seller records revenue, buyer records expense/asset
  • Intercompany loan: Lender records receivable, borrower records payable
  • Dividend payment: Subsidiary records expense, parent records income
From the consolidated entity’s perspective, these are internal transfers with no economic substance. Elimination rules automatically remove these transactions during consolidation.

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Elimination Types

The system supports six types of eliminations per ASC 810:

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Intercompany Receivable/Payable

Purpose: Eliminate accounts receivable and accounts payable between group companies. Example: If Company A has 50,000receivablefromCompanyB,andCompanyBhas50,000 receivable from Company B, and Company B has 50,000 payable to Company A, both balances must be eliminated. Accounting: 
DR  Intercompany Payable    $50,000
  CR  Intercompany Receivable         $50,000

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Intercompany Revenue/Expense

Purpose: Eliminate sales revenue and corresponding cost of goods sold or expenses. Example: Company A sells goods to Company B for $100,000. Company A records revenue, Company B records COGS or expense. Accounting: 
DR  Intercompany Revenue     $100,000
  CR  Intercompany COGS/Expense       $100,000

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Intercompany Dividend

Purpose: Eliminate dividend income recorded by parent from dividends paid by subsidiary. Example: Subsidiary pays $25,000 dividend to parent. Accounting: 
DR  Dividend Income          $25,000
  CR  Dividends Paid                  $25,000

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Intercompany Investment

Purpose: Eliminate parent’s investment in subsidiary against subsidiary’s equity. Example: Parent holds investment of $500,000 in subsidiary, representing their share of equity. Accounting: 
DR  Subsidiary Equity        $500,000
  CR  Investment in Subsidiary        $500,000
This elimination is typically done at acquisition and adjusted for subsequent changes in equity. Any excess of investment over equity is recognized as goodwill.

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Unrealized Profit - Inventory

Purpose: Eliminate profit on inventory sold to another group member that remains unsold to external parties. Example: Company A sells inventory to Company B at 120,000(cost120,000 (cost 100,000). Company B still holds the inventory at period end. Accounting: 
DR  Intercompany Sales       $20,000
  CR  Inventory                       $20,000

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Unrealized Profit - Fixed Assets

Purpose: Eliminate profit on fixed assets transferred between group members. Example: Company A sells equipment to Company B for 80,000(carryingvalue80,000 (carrying value 60,000). Accounting: 
DR  Gain on Sale of Equipment  $20,000
  CR  Fixed Assets                        $20,000
Unrealized profit eliminations are gradually reversed over time as the inventory is sold to external parties or as the fixed asset is depreciated.

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Creating an Elimination Rule

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Go to Consolidation > select your consolidation group > Elimination Rules tab.
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Create new rule
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Click Add Elimination Rule and provide:
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  • Rule name - Descriptive name (e.g., “Eliminate IC Receivables/Payables”)
  • Description - Optional detailed explanation of the rule’s purpose
  • Elimination type - Select from the six types listed above
    • 6
    Configure trigger conditions
    7
    Define when this rule should apply:
    8
  • Source accounts - Which accounts trigger the rule (using account selectors)
  • Minimum amount - Optional threshold; only transactions above this amount trigger the rule
    • 9
    Specify source and target accounts
    10
    Source accounts (what to eliminate):
    11
  • Use account selectors to identify accounts containing intercompany balances
  • Can select by specific account, account range, or account category
    • 12
    Target accounts (where eliminations post):
    13
  • Specify where the offsetting elimination entries post
  • Can use same account or different elimination accounts
    • 14
    Set debit and credit accounts
    15
    Specify the specific accounts for the elimination entry:
    16
  • Debit account - Account to debit in the elimination entry
  • Credit account - Account to credit in the elimination entry
    • 17
    Configure processing options
    18
  • Automatic processing - Enable to auto-generate eliminations during consolidation runs
  • Priority - Lower numbers execute first (0 = highest priority)
  • Active status - Toggle to enable/disable the rule

    • ​
    Account Selectors

    Elimination rules use flexible account selectors to target accounts:

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    By Specific Account ID

    Target a single, specific account. Use case: Eliminating a known intercompany receivable account. 
    {
  _tag: "ById",
  accountId: "123e4567-e89b-12d3-a456-426614174000"
}

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    By Account Number Range

    Target all accounts within an account number range. Use case: All intercompany accounts in range 9000-9099. 
    {
  _tag: "ByRange",
  fromAccountNumber: "9000",
  toAccountNumber: "9099"
}

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    By Account Category

    Target all accounts of a specific category. Use case: All current asset or current liability accounts. 
    {
  _tag: "ByCategory",
  category: "CurrentAsset"
}
    You can use multiple selectors in a single rule. The rule triggers if any selector matches (OR logic).

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    Rule Execution Priority

    When multiple elimination rules apply during a consolidation run, they execute in priority order:
    1. Sort by priority - Rules with lower priority numbers execute first
    2. Execute in sequence - Each rule generates its elimination entries
    3. Apply all eliminations - All entries are posted before calculating the final consolidated trial balance
    Priority matters when rules depend on each other. For example, eliminate intercompany revenue/expense (priority 10) before unrealized profit in inventory (priority 20).

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    Automatic vs. Manual Processing

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    Automatic Processing

    When enabled, the rule automatically generates elimination entries during every consolidation run without manual review. Use for:
    • Well-understood, recurring eliminations
    • Simple receivable/payable eliminations
    • Standardized intercompany transactions

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    Manual Processing

    When disabled, the rule requires manual review and approval before posting elimination entries. Use for:
    • Complex unrealized profit calculations
    • One-time or unusual eliminations
    • New elimination types during testing phase
    You can review all proposed elimination entries before finalizing a consolidation run, even for automatic rules. This provides an audit trail and opportunity to verify amounts.

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    Viewing Elimination Entries

    After a consolidation run, you can view all generated elimination entries:
    1. Navigate to the Consolidation Run details
    2. Click the Eliminations tab
    3. Review each elimination entry showing:
      • Source rule
      • Debit and credit accounts
      • Amount eliminated
      • Impact on consolidated balances

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    Example Elimination Rules

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    Example 1: Intercompany AR/AP

    Scenario: Eliminate all receivables and payables in accounts 9000-9099. 
    Rule Name: Eliminate IC Receivables/Payables
Type: IntercompanyReceivablePayable
Source Accounts:
  - ByRange: 9000 to 9099 (Receivables)
Target Accounts:
  - ByRange: 9000 to 9099 (Payables)
Debit Account: 9050 (IC Payable)
Credit Account: 9010 (IC Receivable)
Automatic: Yes
Priority: 10

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    Example 2: Intercompany Sales

    Scenario: Eliminate all sales revenue and COGS for intercompany transactions. 
    Rule Name: Eliminate IC Sales and COGS
Type: IntercompanyRevenueExpense
Source Accounts:
  - ById: [Intercompany Sales Account]
Target Accounts:
  - ById: [Intercompany COGS Account]
Debit Account: 4500 (IC Sales Revenue)
Credit Account: 5500 (IC Cost of Sales)
Automatic: Yes
Priority: 10

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    Example 3: Unrealized Inventory Profit

    Scenario: Eliminate profit on inventory still held by group members. 
    Rule Name: Eliminate Unrealized Inventory Profit
Type: UnrealizedProfitInventory
Source Accounts:
  - ByCategory: CurrentAsset (Inventory)
Target Accounts:
  - ById: [COGS Account]
Debit Account: 4500 (IC Sales)
Credit Account: 1200 (Inventory)
Minimum Amount: $1,000
Automatic: No (requires review)
Priority: 20
    Unrealized profit eliminations often require manual calculation based on markup percentages and quantities on hand. Consider using manual processing with supporting documentation.

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    Testing Elimination Rules

    Before activating automatic processing:
    1
    Create test consolidation run
    2
    Run a consolidation for a prior period where you know the expected elimination amounts.
    3
    Review proposed eliminations
    4
    With the rule set to manual processing, review all proposed elimination entries.
    5
    Verify amounts and accounts
    6
    Confirm:
    7
  • Amounts match your manual calculations
  • Correct accounts are debited and credited
  • No unexpected eliminations are generated
    • 8
    Enable automatic processing
    9
    Once verified, enable automatic processing for future consolidation runs.

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    Troubleshooting

    Check:
    • Rule is active
    • Source account selectors match actual account numbers/categories
    • Transaction amount exceeds minimum threshold (if set)
    • Rule priority isn’t causing it to be skipped
    Verify:
    • Debit and credit accounts are correct
    • Account selectors are capturing all intended accounts
    • No duplicate rules are eliminating the same transactions
    • Intercompany transactions are properly flagged in the source data
    Review:
    • Elimination entries are balanced (debits = credits)
    • Target accounts exist and are active
    • No circular dependencies between elimination rules
    • Error messages in the consolidation run log

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    Best Practices

    1. Start simple - Create basic rules first (receivables/payables, revenue/expense) before tackling complex unrealized profit eliminations
    2. Use consistent account numbering - Designate a specific account range (e.g., 9000-9999) for all intercompany accounts across all group companies
    3. Document assumptions - Add detailed descriptions to rules explaining calculation methods and assumptions
    4. Test in manual mode - Always test new rules with manual processing before enabling automatic mode
    5. Review quarterly - Quarterly review all elimination rules to ensure they’re still appropriate and complete
    6. Reconcile regularly - Don’t wait until consolidation time to identify intercompany discrepancies

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    Next Steps

    Intercompany Transactions

    Track and reconcile intercompany transactions

    Consolidation

    Learn about the full consolidation process

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