What do you understand by Intercompany Settlement?

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Sarvottam Darshan

  • Feb 21st, 2006
 

A key functional area of SAP for Utilities that supports cross-company exchange of settlement data based on international standards such as EDI, XML, and Microsoft Excel.

Intercompany data exchange manages data transfer between retailers, distributors, and independent service operators with special regard to the requirements in deregulated markets.

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A company may have various company codes accross the different locations... There will be exchange of goods and services between these company codes. These goods and services which are shared or exchanged between these company codes are reconciled during the month end process. The exchange difference has to be settled by a company code in the way of money transfer this process is known as intercompany settlement.

Subhash

  • Nov 25th, 2011
 

As we know inter company balance is arises due to Inter company invoices raised but not settled, Cash movement, expenses paid by the parent or sister companies,etc. which lead to increase debtors & creditors in Balance sheet as well as increases the foreign exchange movement.
Intercompany settlement is to settle all the inter company transaction to reduce the debtors & creditors in the balance sheet to the right picture of the business and at the same time it helps to reduce the risk of maintaining large Inter company balance which result in smaller foreign exchange movement.

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S Ramakrishnan

  • Jan 25th, 2012
 

In case of large organisations which have multiple locations accross the globe, there are various AP and AR transactions which takes place between them, at the end of every period (Month), every entity will check their net payable and receivable status with other entities and a settlement is agreed between them.
Example : XYZ Ltd US has a payable of $100,000 and has a receivable of $150,000 from XYZ Ltd India, in this case XYZ Ltd US is in a net receivable position of $50,000 from XYZ Ltd India.

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