Intercompany
Overview
Intercompany accounting lets you manage and report on business events transacted between related companies.
An intercompany transaction exists when one company acts on behalf of another company. Workday tracks money owed and to which company, how and when you pay it, and how or when you receive it. For two companies to transact or settle with each other, you must define an intercompany relationship in Workday. You can settle intercompany items in one of two ways: with cash or without cash.
Note
: Workday distinguishes between On Behalf Of Intercompany transactions and Direct Intercompany transactions. On Behalf Of Intercompany transactions track where money is due to or from related companies. Direct Intercompany transactions occur when related companies exchange supplier and customer invoices.Objectives
By the end of this chapter, you will be able to:
- Configure the Company intercompany profile to establish the relationship between companies.
- Describe the difference between an on behalf of intercompany and direct intercompany transaction.
- Verify that account posting rules exist for intercompany receivables and payables.
- List the steps for processing intercompany transactions.
- Create an intercompany manual journal and intercompany transactions.
- Settle intercompany transactions between companies.
- Record the receipt for intercompany transactions.
- View the Intercompany Work Area and run related intercompany reports to review and reconcile intercompany transactions.
Security Policies
As you deploy Workday, you will configure security policies to ensure the appropriate security groups have the right permissions. This chapter covers the following security groups, domains, and business processes.
Security Groups
- Finance Administrator: This user-based security group creates and maintains all financial setup data, regardless of organization. Examples include financial institutions, financial accounting data, ledgers, journal sources, account control rules, fiscal schedules, items, and taxes. No approval
- Accounting Manager: This role-based security group can open/close ledger periods and years for assigned companies. Correction authority for financial accounting business processes.
- Controller:This role-based security group can view all financial operational data for assigned companies. Approval authority for all financial business processes.
- Accountant: This role-based security group performs accounting functions for assigned companies. Examples include creating journals, allocations, receipt accruals, depreciation, and intercompany settlements. Approval authority for financial accounting business processes.
- Accounts Payable Data Entry Specialist: This role-based security group performs accounts payable data entry functions for assigned companies. Examples include creating supplier invoices and recurring supplier invoices. No approval authority.
- Accounts Receivable Specialist: This role-based security group can perform most of the transactions performed with revenue management, including customer invoices, customer invoice adjustments, and customer payments.
- Customer Billing Specialist: This role-based security group performs customer contract billing functions for assigned companies. Examples include maintaining billing schedules and generating installments, as well as creating invoices and invoice adjustments. Approval authority for customer contract business processes.\
- Customer Payment Specialist: This role-based security group performs accounts receivable data entry functions for assigned companies. Examples include creating customer payments, invoice adjustments, and write offs. Approval authority for customer accounts, payments, and settlement business processes.
- Customer Deposit Specialist: This role-based security group performs accounts receivable data entry functions for assigned companies. Examples include creating customer bank deposits and other types of customer deposits. Approval authority for customer accounts, payments, and settlement business processes.
- Settlement Specialist: This role-based security group performs settlement functions across all payment categories for assigned companies. Use for centralized settlement operations (otherwise use Accounts Payable Settlement Specialist, Payroll Settlement Specialist, etc.). Approval authority for settlement business processes.
Domains
Topic | Functional Area | Domain |
|---|---|---|
Intercompany | Common Financial Management Banking Settlement | Setup: Company Accounting Process: Settlement |
Business Processes
- Accounting Journal Event
- Customer Invoice Event
- Record Intercompany Receipt Event
Company Intercompany Profile
Before you can record an intercompany transaction, you must define the relationship between companies in Workday using the
Edit Company Intercompany Profile
task. The Company Intercompany Profile enables intercompany transaction processing across companies. It allows you to specify which companies can initiate or only settle transactions. The Company Intercompany Profile also allows you to provide a default payment type and limit the payment types. You can also opt in to automatically generate intercompany receipts after completion of a settlement run and specify the bank account used for settlement.Note
: To define an intercompany relationship between companies, the companies must use the same account set.Account Posting Rules
Intercompany processing needs account posting rules to establish the intercompany receivables and payables accounts used to record and settle intercompany transactions. At a minimum, you must set the account posting rules to have a default ledger account for posting.
On Behalf of Intercompany Transactions
In Workday, an intercompany transaction is created by entering two companies on one transaction. Enter the initiating company in the transaction header and designate the receiving company on the transaction line. Workday automatically adds an intercompany worktag to the resulting journal lines.
Another term for Intercompany worktags is Intercompany Affiliates. They represent the due to or due from company in an intercompany transaction. Workday limits available worktag affiliates to companies configured in the initiating company's Intercompany Profile. You can add intercompany affiliates to business process condition rules if it requires an approval routing.
On Behalf of Intercompany Processing Steps
A complete intercompany transaction flow includes the following steps:
- Create transaction.
- Settle transaction.
- Record receipt of transaction.
Example
: Global Modern Services, for example, pays a supplier invoice for legal services used by Green Planet Solutions, Inc. On the invoice header is written Global Modern Services, meaning it is the initiating company. Green Planet Solutions, Inc. is the company indicated on the supplier invoice line as it is the receiving company. The following journal entries post to the GL when Global Modern Services approves and pays the supplier invoice.Step 1 – Create the Transaction
Company | Account | Intercompany Affiliate | Debit | Credit |
|---|---|---|---|---|
Global Modern Services | Intercompany Receivables | Green Planet Solutions, Inc. | 37,000 | |
Accounts Payable - Barrister, LLP | 37,000 | |||
Green Planet Solutions, Inc. | Legal & Service Fees | 37,000 | ||
Intercompany Payables | Global Modern Services | 37,000 | ||
Payment of the invoice: | ||||
Global Modern Services | Accounts Payable - Barrister, LLP | 37,000 | ||
Cash | 37,000 |
Remember, for every intercompany transaction there are three basic steps: create, settle, and record receipt. Global Modern Services created the transaction. Green Planet Solutions, Inc. may settle the transaction and pay Global Modern Services. Global Modern Services would record receipt of the payment if they did not opt in to automatically generate intercompany receipts.
Note
: Intercompany settlement and receipt are optional in Workday and their use varies based on customer requirements. In this example, we will settle and record receipt of the intercompany transaction.Step 2 – Settle the Transaction
The second part of the transaction is the settlement of the invoice between Green Planet Solutions, Inc. and Global Modern Services. Green Planet Solutions, Inc. would create a settlement run using a filter configured for All Available Intercompany Items. The process is like a regular settlement except the payment is to another company, not a supplier. The intercompany settlement generates the following accounting:
Company | Account | Intercompany Affiliate | Debit | Credit |
|---|---|---|---|---|
Green Planet Solutions, Inc. | Intercompany Payables | Global Modern Services | 37,000 | |
Cash | 37,000 |
Step 3 – Record the Receipt of the Transaction
The third step is for Global Modern Services to record the receipt and deposit of cash from Green Planet Solutions, Inc. Global Modern Services would run the
Record Intercompany Receipt
task.Note
: You can configure the record receipt of transaction step to occur automatically in the intercompany profile. To opt into this feature, first go to the Edit Intercompany Profile
task for the company. Next, select Record Intercompany Receipts
and select a bank account for the Bank Account for Intercompany Receipts column. You can change the bank account after initial setup.Configuring automatic recording of transaction receipts is optional, but highly recommended. It removes the manual process of recording intercompany receipts, increasing the accuracy and efficiency of recording matched intercompany transactions.
When recording intercompany receipts, Workday does not allow partial payments. The receipt generates the following accounting:
Company | Account | Intercompany Affiliate | Debit | Credit |
|---|---|---|---|---|
Global Modern Services | Cash | 37,000 | ||
Intercompany Receivables | Green Planet Solutions, Inc. | 37,000 |
Intercompany Reports
Below is a list of delivered reports used to review and track intercompany activity in Workday.
Report | Description |
|---|---|
Find Intercompany Receipts | Find one or more intercompany receipts. The more criteria you provide, the more targeted the results. |
Intercompany Out of Balance Report | View the Period or Year-to-Date report that shows where Intercompany is out of balance between the selected company and all affiliates. You can run by Company or Company Hierarchy. |
Intercompany Work Area | View all intercompany items not settled. Use this work area to manage intercompany activity as of a period. |
View Intercompany Receipt | View an intercompany payment. |
Note
: When writing reports, it is important to understand the differences between the following:- The Journal Line Custom Report Field (CRF) will include Intercompany Journal Lines.
- The As Entered Journal Lines CRF will exclude Intercompany Journal Lines.
Direct Intercompany Transactions
Direct intercompany transactions are transactions that occur directly between two related companies. First establish an intercompany relationship between related companies via the Company Intercompany Profile. Next, complete additional configuration outside of Financial Accounting to generate customer or supplier invoices in Workday for direct intercompany transactions. Using Direct Intercompany in Workday enables legal compliance in countries that require additional documents for direct intercompany transactions.
When you define companies as customers or suppliers, you can then map the companies to an affiliate company as a customer or a supplier. You can use the
Maintain Companies as Customers or Suppliers
task to designate companies as either customers or suppliers for direct intercompany transactions.Map Sales Items to Purchase Items and Revenue Categories to Spend Categories. Finally, you must edit the Business Processes for Customer Invoice and Supplier Invoice Events to include direct intercompany related steps.
With direct intercompany transactions, you can produce the Accounts Payable and Accounts Receivable documents needed for a global organization. You can also define the relationships between affiliate companies in greater detail and automate the generation and delivery of intercompany documentation.
When you create a customer invoice adjustment for a direct intercompany invoice, Workday automatically creates the supplier invoice adjustment. The Reference Invoice prompt on a supplier invoice adjustment includes direct intercompany invoices.
Example
: Global Modern Services, Inc. (USA) may sell excess office supplies to Green Planet Solutions, Inc. You must define Global Modern Services as a supplier and define Green Planet Solutions as a customer. Also, set up office supplies as a sales item for Global Modern Services, USA and as a purchase item for Green Plant Solutions. Finally, ensure you correctly configure the Workday Owned step, and Initiate Supplier Invoice Intercompany Event on the Customer Invoice Event and Supplier Invoice Event business process definitions.Create Invoices for Direct Intercompany Transactions
Before you can create invoices for direct intercompany transactions, you must first set up customers and suppliers for direct intercompany transactions.
Direct intercompany customer and supplier invoices provide the Accounts Payable and Accounts Receivable documents you need for your global organization.
Steps
- Create Customer Invoices. In the Customer field, select Companies as Customers.
- Create Supplier Invoices. If you did not automate supplier invoices on the Customer Invoice Event business process, then access the Supplier Invoice Workbench, select Companies as Suppliers in the Supplier field, select Customer Invoices, and select the customer invoices you want to include on the supplier invoice.
- Create Manual Settlement Runs. First, select Add and then select Intercompany Items to find the direct intercompany supplier invoices you want to pay. To limit your search results to direct intercompany transactions, select Direct in the Intercompany Invoice Type field.
- Access theRecord Intercompany Receipttask. Then select Direct in the Intercompany Invoice Type field. You can only record receipt for one intercompany payment at a time.
Note
: The recording of the intercompany receipt acts as payment of the customer invoice for direct intercompany transactions. You will not use the Record Customer Payment or Apply Customer Payment tasks when you process intercompany payments.When you record an intercompany receipt:
- Overpayments post to an account.
- You can write off short payments.
- Invoices account for short pay and overpay when an invoice has a different currency than the default.
- You can manage balancing worktag differences to improve reconciling of intercompany payables and receivables. The intercompany receipt posts correctly if a customer invoice has multiple lines using different balancing worktags.
Result
- The intercompany customer invoice includes the corresponding supplier invoice number.
- The intercompany supplier invoice includes the corresponding customer invoice number.
- The intercompany receipt displays on the customer invoice Activity tab.
Next Steps
Verify that your intercompany transaction is complete by viewing the payment status on the header of your direct intercompany customer invoice.
Intercompany Enabled Transactions
To further illustrate the power of Intercompany processing in Workday, the chart below identifies many of the transactions enabled for it. The list is not all-inclusive.
Category | Transactions |
|---|---|
Operational Transactions | Customer Invoice Customer Invoice Adjustment Supplier Invoice Supplier Invoice Adjustment Ad Hoc Bank Transaction Ad Hoc Supplier Payment Cash Sale Customer Contracts Grants Asset Accounting Note : Workday follows a consistent pattern of create, settle, record receipt for Intercompany transactions listed above. |
Banking and Settlement | Bank Account Transfer Note : Designate Intercompany Receiving Company as the From Company on the Bank Account Transfer. |
Intercompany Chapter Summary
Intercompany transactions are quite common, so learning how to complete the necessary configurations is important. The three steps in any intercompany transaction are to create the transaction, settle the transaction, and record receipt of the transaction. You can create transactions on behalf of or via direct intercompany. You can then settle transactions with or without cash. It is also key to remember that you can automate the receipt recording, alleviating this step.