A credit note posted by one group company and missed by another can leave their records showing different amounts for the same debt. Intercompany reconciliation checks the receivable against the corresponding payable, traces differences to their source and establishes what needs resolving.
1. Agree the entity pair, scope and reporting date
Identify the two companies and the accounts being compared. Match Company A’s receivable from Company B with B’s corresponding payable to A, rather than comparing each company’s total intercompany balance across all counterparties.
Use the same reporting date for both extracts. Agree whether you are examining closing balances, outstanding items or movements during a period: each covers a different set of records.
Check sign conventions too. A debit receivable and credit payable can represent the same amount owed, even though their ledger signs are opposite.
2. Gather complete, comparable records
Using multi-entity accounting software to access entity records in one place gives both teams a shared starting point for the comparison. Build a schedule containing the entity, counterparty, transaction reference, posting date, transaction currency, original amount, outstanding amount and matching status.
Retain the source extracts, along with their report filters and extraction dates, so subsequent changes can be traced.
Before matching, check that each schedule explains its relevant ledger balance. Look beyond outstanding invoices for payments on account, unallocated credits or journals outside the invoice listing. Retain ledger-currency values alongside transaction-currency amounts for foreign-currency balances.
If you use period movements, include the opening balance when explaining the closing position. Older differences can otherwise disappear from the investigation.
3. Match transactions, not just totals
Compare references, counterparties, currencies and amounts together. Posting dates help explain differences; an invoice entered later by one entity can still be the same underlying transaction.
In a spreadsheet, filter by entity pair and currency before comparing references. Review duplicates individually: a lookup returning one row can overlook another item with the same identifier.
For unpaid items, compare outstanding amounts rather than original invoice values. One payment can settle several invoices, so trace its allocation across those records.
Balance-level agreement is only a starting check. Missing entries or incorrect allocations can offset each other, leaving individual transactions unmatched despite equal totals.
4. Investigate each unmatched item
Group exceptions by cause: missing entries, duplicates, different posting periods, disputed charges and currency differences. Trace each one to invoices, credit notes, payment records or the relevant agreement.
Compare foreign-currency items in the original transaction currency first. Investigate exchange-rate and translation effects separately under the applicable accounting policies. Different translated balances can reflect currency effects rather than recording errors.
Consider this illustrative sterling reconciliation at one reporting date, with no payments or other items:
| Record | A’s receivable | B’s payable |
|—|—:|—:|
| Invoice | £8,400 | £8,400 |
| Agreed credit note | (£900) | Not recorded |
| Closing balance | £7,500 | £8,400 |
The £900 difference points to a specific document. Check the credit note against the invoice, confirm that both entities accept it and establish that it applies to the reporting period.
5. Make only evidence-backed corrections
In the example, B records the omitted £900 credit note through its authorised process, reducing its payable to £7,500. A’s existing balance remains unchanged. Keep the document and correction reference alongside the reconciliation.
For each correction, establish which entity needs to act and obtain the required approval. Resolve disputed charges between the entities before deciding the appropriate adjustment, rather than posting a journal simply to force agreement.
Reconciliation verifies and explains the companies’ records. Consolidation elimination removes relevant internal balances and activity from group reporting; unexplained differences in the underlying books still require investigation.
6. Recheck balances and document the outcome
Rerun the comparison after corrections and confirm that the revised schedules explain the ledger balances. Save the final extracts, matching schedule, supporting documents and review record.
Track unresolved differences in an exception log containing the amount, cause, evidence, owner, next action, deadline and status. Escalate overdue or significant items through the group’s agreed process.
Both entities should review the outcome. Use distinct statuses for “fully matched” and “reviewed with outstanding exceptions” so completion records accurately reflect the work remaining. A reviewer should be able to trace matched items, approved changes and the person responsible for each remaining exception.
