Concept: Intercompany Transactions
Intercompany transactions arise when 1 unit of a single legal entity does business with another unit of the same entity. Intercompany transactions can occur between 2 divisions, 2 subsidiaries, or a parent company and a subsidiary. These transactions improve the flow of finances and assets between the companies.
In Workday, you can perform direct intercompany transactions and on-behalf-of intercompany transactions.
Direct Intercompany Transactions
Direct intercompany transactions occur when 2 units within the same legal entity conduct business with each other as a customer and a supplier.
Example: Global Modern Services (GMS) USA and Global Modern Services (GMS) France are affiliate companies. GMS USA manufactures and sells office furniture. It also supplies the furniture to its affiliate companies. In this case:
- GMS USA operates as a supplier and generates a customer invoice to record the sale to GMS France.
- GMS France operates as a customer and generates a supplier invoice to record the purchase from GMS USA.
- GMS France pays GMS USA through a settlement run.
- GMS USA records an intercompany receipt to accept the payment from GMS France.
To process direct intercompany transactions, you must:
- Configure intercompany profiles.
- Set up the customer and supplier relationships between your companies.
- Map sales items to purchase items.
- Configure revenue category and spend category.
- Create transfer pricing rate sheets for your intercompany project workers to apply to the intercompany contract.
- Configure account posting rules to record intercompany receivables and payables.
- Configure business processes to record intercompany receipt.
- Define elimination rules for intercompany balances remaining at a period close to avoid dual accounting when you create consolidated financial reports.
On-Behalf-Of Intercompany Transactions
On-behalf-of intercompany transactions arise when 1 unit of a legal entity process the invoices and payments on behalf of the unit that supplies good and services.
Example: GMS USA and Green Planet Solutions are affiliate companies. In this case, when Green Planet Solutions provides goods and services to its customers:
- Green Planet Solutions invoices the customer.
- The customer sends the payment to the GMS USA.
- GMS USA records the payment, creates a deposit, and applies the payment on behalf of Green Planet Solutions.
- After payment application, GMS USA sends an intercompany payment to Green Planet Solutions through a settlement run.
- Green Planet Solutions confirms receiving the payment by recording an intercompany receipt.
To process on-behalf-of intercompany transactions, you must:
- Configure intercompany profiles.
- Create bank routing rules.
Indirect Intercompany Transactions
Indirect intercompany arises when 1 unit of the legal entity doesn't fully transact in Workday and only books 1 side of the transaction. Therefore:
- Indirect intercompany transactions create only 1-sided journals in Workday.
- Workday won't create the additionalIntercompanytab on theView Journalreport.
- Set up external entity as a company in Workday to be able to tag the transactions with theIntercompany Affiliateworktag.
For these transactions you might also need to:
- Provide source documents for statutory requirements.
- Define account posting rules for those customers and suppliers.
- Create workarounds for fully settling indirect intercompany transactions.
Intercompany Receipts
Intercompany receipts act as an acknowledgment of a payment on the books of the company that paid for the intercompany transaction.
On receipt creation, whether manual or automatic, Workday generates a:
- Debit on theCashledger account.
- Credit on theIntercompany Receivablesledger account.