As already mentioned in the section ‘Chart of Accounts,’ there is usually no need for separate accounts for posting group-internal business transactions. Instead, such entries are identified by the assignment of trading partners per transaction. The settings in system configuration are shown in the following sections.

The primary goal here is to automate the posting assignments for group-internal transactions as much as possible and to keep the additional assignments to a minimum.

Affiliated companies are usually represented as trading partners in customer and vendor master records. The ‘trading partner’ must be assigned in these master records.

Then, when an affiliated customer or vendor is posted in a document, the ‘trading partner’ is copied into the receivables or payables entry and, usually, also into the offsetting entry. As a result, not only is the partner data later available in Consolidation for the elimination of intercompany (IC) payables and receivables from the balance sheet, but also for eliminating IC revenue and expense from the income statement. When posting the trading partner data onto the offsetting entry, you must take into consideration that only one trading partner may appear on a document in order to keep the assignment unique. However, this restriction does not apply to all transactions, as in the case of payments. The offsetting entry portion of cash accounts are not consolidation-relevant. Therefore, by using a document type characteristic, you can restrict the trading partner assignment to the initiating customer or vendor line item in the document and, thus, allow more than two companies on a payment document. When using this technique, however, no trading partner relationships will be assigned when posting any income statement entries for unauthorized allowances or currency translation differences.

If a company becomes affiliated during the fiscal year, the account assignment in the customer or vendor master record is also changed during the year, so that the new assignment will only be posted into the documents starting at that point in time. During payment receipts the payment program always focuses on the open item. When the data is transferred, if open items from the period before the company became an affiliate still exist, the respective partial balances are disclosed under ‘External Business.’

When the group employs ‘step consolidation,’ as far as the trading partner indicator is concerned there should not be any difference between companies belonging to your own subgroup and those belonging to the superior holding corporation. The trading partner assignment does not alone trigger the eliminations within your subgroup, but also, the trading partner must indeed belong to the subgroup. Thus, as a matter of course, the company ID’s of the subgroup must correspond to those of the superior (holding) group.

If you want to use G/L accounts directly, instead of customer and vendor accounts, for the entry of receivables and payables you can also enter the trading partner (see above) into the G/L account master record used for direct posting on the balance sheet. The same functionality described above for transferring the assignment into the document and for all offsetting entries applies here also.

Income statement accounts, on the other hand, basically use the following logic: Since you can post both ‘external’ and group-internal business transactions for any subsidiary to the same account, it would not make sense to store a default trading partner in the master record or similar place.

There is currently no feature for indicating that specific accounts be reserved exclusively for group-internal transactions; as a substitute, you can use validation rules to accomplish this.

Company code clearing accounts for cross-posting derive their trading partner from those company codes involved.

When business transactions are accounts receivable- or payable-related, i.e., the document includes an affiliated customer or vendor, then the trading partner is derived from the customer or vendor master record, so that no manual entry is needed. If the entry is not customer- or vendor-related, only then must the trading partner be entered manually. This could be the case when posting a transfer from an income statement account to another account or to a different cost center. Then the trading partner must be entered only once in the document header and is automatically copied onto each line item.

Several business transactions that occur frequently in the various operative applications - as relating to their trading partner assignments -- are described more closely:

• Customer or vendor invoice: The trading partner is copied from the customer or vendor master record and is duplicated in the offsetting entries. Only one trading partner may occur in the document.

• Invoice receipt against clearing account and transfers with clearing: If you do not post an incoming invoice directly to an expense account, but instead against a clearing account, the selection of open items must be restricted to those of a certain trading partner when posting the transfer later on; the same trading partner is automatically copied onto the transfer line item.

• Customer or vendor payment: You can configure the document type for payments to allow for more than one trading partner in a payment document. Then, the trading partner is copied only into the customer or vendor line items.

• Down payments and down payment clearings are always customer- or vendor-related and are, therefore, handled like the invoices described above.

• Asset transfers between company codes: If a fixed asset is transferred to another company code, two posting documents are required - one for each company code. The trading partner of each document must be set with the company ID of the other company code, respectively.

• When receiving goods from an affiliated vendor, the trading partner is taken from the vendor mentioned on the order for the inventory entry and the goods/invoice receipt. If invoices are still open on the balance sheet key date, group-internal provisions are created from the clearing account for goods/invoice receipts. These provisions can later be eliminated in the Consolidation system using the trading partner assignment.

• Order-related invoice receipts also derive the trading partner from the vendor on the order and duplicate it into the offsetting entries.

• Material transactions across company codes automatically derive the trading partner from the company code assignments.

• Cross-company code CO settlements are transferred periodically using adjusting entries to Financial Accounting via the reconciliation ledger. The trading partner is derived from the company code, which, in turn, comes from the respective CO posting object being addressed. These are always dual settlements, whereby the trading partner can always be uniquely identified.

Effective reconciliation of group-internal balances is essential prior to consolidation. Settling balances within the elimination of IC payables/receivables or revenue/expense would often be too late to be processed satisfactorily. The techniques described below should help the FI user to control the intercompany transactions during the year and to take necessary preventative measures:

• When dealing with consolidated companies as vendors and/or customers, correspondence reporting in FI generates balance confirmations, account statements and open item lists in letter form with wide-ranging design options (see FI documentation). Also available for internal use are corresponding balance and open item listings, which can be restricted to consolidated companies.

• Often, due to archiving limitations, a statement of the revenues and expenses with internal trading partners can not be achieved using the document database over a long period of time. You can, however, generate reports from G/L account accumulations which can be sorted by trading partners.

• Furthermore, in a centralized system you can compare the documents of two companies related to a group-internal transaction. Thus, reconciliation on a document level can take place providing that the ‘cross-company document number’ is used. The basic idea is that the trading partner imposes a group-wide, unique reference number for the transaction initiated; this reference number is then also assigned to all other related documents, especially to those of the other partner(s). A document evaluation can now occur across company codes, be sorted by the reference number and, if needed, be selected according to the common balance in certain accounts (e.g., all balance sheet or all income statement accounts). This would enable you to recognize transactions with significant posting differences needing reconciliation after a certain deadline. A standard report to that effect is planned for a later release.

• The reconciliation of cross-company code postings using clearing accounts is supported on a central system and will later be supported as well for trading partners that can be accessed on networked systems. The balance as well as the line items on the partner-related accounts provides for quick reconciliation on the screen. As a rule, the automatic posting across company codes prevents balances from occurring on the clearing accounts in the first place.