What are month-end inter-company eliminations?

Question

What are month-end inter-company eliminations?

Answer 1

multi-national companies or even those with multiple divisions will sell product or services from one internal unit to another. typically these sales are driven by discount from list or a cost plus approach. since these are inter-co transfers you cannot treat them the same as external sales.

the selling unit sells to the buying unit at an agreed upon transfer price. the buying unit turns it around and sells to an external customer - this is where the revenue is recognized. sales margin between the two internal companies is then eliminated.