When you process and invoice an order, the selling organization records entries to accounts receivable, for revenue, tax, and freight. The shipping warehouse records entries to the inventory asset account and the cost of goods sold (COGS) account. When the above scenario involves a selling organization in one operating unit, and a shipping organization in another operating unit additional accounting must take place.
The shipping organization must bill the selling organization at the transfer price, and the selling organization must make the corresponding payment. The intercompany accounts receivable invoice is the transaction the system uses to record the intercompany receivable accounting for the shipping organization. It debits the intercompany accounts receivable at transfer price, charges tax, freight, and credits intercompany revenue.
The intercompany accounts payable invoice is the transaction the system uses to record the payable accounting for the selling organization. The system debits intercompany COGS and freight, and credits the intercompany payable account.
Intercompany invoicing provides the following benefits:
Reduce procurement costs.
Reduce the complexity of interactions with suppliers.
Centrally control the amount and timing of funds dedicated to procurement activities on behalf of subsidiaries.
Secure supply commitments on the basis of parent company credit ratings.
Expedite delivery by avoiding unnecessary intermediate delivery locations.
You can ship an order from a shipping warehouse that has a different operating unit other than the selling organization. The system generates an intercompany invoice to record an intercompany sale between the shipping organization and the selling organization.
You can define different accounts for trade, intercompany COGS, and sales revenue to eliminate intercompany profits. You can also use price lists to establish intercompany invoices.
The following is the overall intercompany invoice business process:
The customer places an order with the selling operating unit.
The order ships to the customer from a shipping warehouse associated with an operating unit that differs from the selling operating unit.
The shipping operating unit issues an intercompany receivable invoice to the selling operating unit at the transfer price.
The selling operating unit issues an intercompany payable to the shipping operating unit.
If the customer is external then, the selling operating unit sends a separate invoice to the customer.