Lesson 2 of 5
Intercompany sales and purchasing
7 min
Most intercompany volume does not come from finance postings. It comes from logistics: one entity sells or ships goods to another. In Contoso's case, company code 1710 manufactures CMC-ALT-100 alternators, and company code 1810 buys them and resells them to aftermarket customers. Each shipment creates a sale in 1710 and a purchase in 1810, and the finance result depends on both sides being posted, in the same period, at the same price.
Two common patterns
| Intercompany stock transfer | Cross-company sales | |
|---|---|---|
| Trigger | Stock transport order from the receiving plant | Customer order taken by one company, delivered from another company's plant |
| Contoso example | 1810's warehouse orders alternators from the Detroit plant | 1810 sells to Great Lakes Fleet Services; Detroit ships directly |
| Supplying side (1710) | Delivery, goods issue, intercompany billing document to 1810 | Delivery from plant 1710, goods issue, intercompany billing document to 1810 |
| Receiving side (1810) | Goods receipt; supplier invoice from the intercompany billing | Customer invoice to the end customer; supplier invoice for the internal price |
| Linked tracks | Procurement and logistics | Sales and procurement |
- Stock transport order1810 orders 200 CMC-ALT-100 from plant 1710
- Delivery and goods issuePlant 1710 ships; stock and cost of sales post in 1710
- Intercompany billingBilling document (typically type IV) creates revenue and a receivable from 1810
- Goods receipt1810 receives the stock at the purchase order price
- Supplier invoicePosted in 1810 manually or automatically from the billing document
Intercompany billing
The selling entity's billing document for internal sales usually uses a dedicated billing type (the standard is IV, intercompany billing). The selling sales organization needs a customer (business partner) representing the buying entity, with the trading partner set, and an internal price, often from a dedicated pricing procedure and condition type. On the buying side, the supplier invoice can be keyed by AP, or created automatically from the billing document by electronic message (IDoc) so that the two sides cannot drift. The automatic route is strongly preferred: manual entry is the main source of amount and timing differences.
The detail of order types, delivery types and pricing belongs to the sales and procurement tracks. What finance needs to know is the shape of the postings, and that the internal price drives both the selling entity's revenue and the buying entity's inventory value.
| Event | Company code 1710 (seller) | Company code 1810 (buyer) |
|---|---|---|
| Goods issue | Cost of sales 30,000 / Inventory 30,000 | |
| Intercompany billing | Receivable from 1810 34,000 / Revenue 34,000 | |
| Goods receipt | Inventory 34,000 / GR/IR 34,000 | |
| Supplier invoice | GR/IR 34,000 / Payable to 1710 34,000 | |
| Intercompany balance | Receivable 34,000 | Payable 34,000 |
200 alternators at standard cost $150 sold internally at $170 each (illustrative).
Settlement closes the loop. The intercompany receivable in 1710 and the payable in 1810 are eventually paid, either by a normal payment run in 1810, by a netting process where several intercompany balances are offset against each other, or through an in-house bank arrangement. Whatever the method, the payment must clear the open items on both sides in the same period. A payment that clears 1810's payable while 1710 posts the incoming cash on account, without clearing the receivable, creates a new reconciliation difference even though no money is missing. Include settlement in the design and in the test plan, not just the invoice flow.
What would you do?
At month end, 1710 shows a USD 34,000 receivable from 1810 for an alternator shipment, but 1810 shows nothing. The goods are in transit and the supplier invoice is keyed manually by 1810's AP team when the goods arrive. What is the best long-term fix?
- Most intercompany volume comes from stock transfers and cross-company sales.
- The seller posts intercompany billing (typically billing type IV); the buyer posts goods receipt and supplier invoice.
- Automatic creation of the buyer's supplier invoice from the billing document prevents most differences.
- Internal prices create intercompany profit that group reporting eliminates.
Check your understanding · not graded
Lesson check
1. Which document creates the intercompany receivable in the selling company code?
2. Why is automatic creation of the buyer's supplier invoice preferred?
3. What drives both the seller's revenue and the buyer's inventory value?