An intercompany elimination is a consolidation entry that removes the effect of an internal flow from the group financial statements, so that the consolidated accounts show only transactions with third parties. It is booked in the consolidation layer, not in the statutory books of either entity: each entity keeps its own accounts intact.
Four families of elimination cover most cases. Reciprocal balances: an intragroup receivable is cancelled against the matching payable. Reciprocal flows: internal revenue is cancelled against the corresponding internal cost. Internal margin: profit embedded in inventory still held by another group entity is removed until the goods are sold outside the group. Dividends and provisions booked by one entity on another are reversed.
Elimination and reconciliation are not the same step, and the order matters. Reconciliation checks that both sides of an intercompany transaction agree. Elimination removes them from the consolidated view. You cannot eliminate what you have not reconciled: if entity A shows 40 000 and entity B shows 38 500, cancelling one against the other leaves a 1 500 difference that has to be posted somewhere. It usually lands in an unexplained variance that the auditor will find.
This is why the reconciliation stage carries the real workload. Chasing an intercompany mismatch across entities, ledgers and accounting teams consumes days at every close, before a single elimination entry can be written.
Phacet's intercompany flow reconciliation agent compresses that stage: it matches corresponding entries across all group entities, documents every matched pair with a traceable audit trail, and escalates only the unmatched items with the context needed to resolve them. Elimination then works on a base that has already been agreed, which is what an audit-ready close requires.
