MULTI-COMPANY REPORTING
When your companies trade with each other, adding their reports together double-counts internal activity. This guide uses real numbers to show how to remove it from the group report.
THE SHORT VERSION
If one of your companies charges another $10,000, one company records a $10,000 sale and the other records a $10,000 cost. Add the reports together and the group appears to have more sales and more costs, even though no outside customer paid the group.
The same problem occurs with loans. One company records money owed to it; the other records money it owes. Both balances are real for the individual companies, but they cancel each other when you look at the group as one business.
Start by listing internal sales, management fees, rent, loans and other balances between related companies. Use the same reporting dates for every company.
Compare the entry in one company with the matching entry in the other. Check the amount, date, account, GST or other tax treatment and currency. Do not remove an amount until you understand both sides.
Differences are common. One company may record a June invoice in July. The companies may use different account names, such as Management Fees and Admin Charges. One side may include GST while the other does not.
If the companies use different currencies, compare them using the group's documented exchange-rate policy. Show any remaining difference instead of adding a plug simply to make the report balance.
An elimination removes internal amounts from the combined group report. It does not delete an invoice, loan or payment from either company's Xero file. Each company keeps its own complete accounting history.
Remove both sides in equal amounts. For an internal management fee, remove the group's internal income and matching internal expense. For a loan, remove the internal receivable and matching payable.
If someone approves an elimination and the amount later changes, the new version must be checked again. The approval only covers the figures that were actually reviewed.
For every elimination, record the companies, accounts, amount, reporting period and reason. Keep the source references and explain any difference that has not yet been resolved.
Make sure the approved removals are applied to the group totals, not only listed in a note. Then retain the final elimination list with the consolidated report. Consolidation means combining several related companies into one set of group figures.
A new accountant or finance team member should be able to follow the work without decoding an undocumented spreadsheet. Clear evidence is as important as the final total.
WORKED EXAMPLE
In June, Smith Holdings charges Smith Retail a $10,000 management fee and lends it $50,000.
| Item | Smith Holdings | Smith Retail | Added together | Elimination | Group total |
|---|---|---|---|---|---|
| Management-fee income | $10,000 | - | $10,000 | ($10,000) | $0 |
| Management-fee expense | - | $10,000 | $10,000 | ($10,000) | $0 |
| Loan receivable | $50,000 | - | $50,000 | ($50,000) | $0 |
| Loan payable | - | $50,000 | $50,000 | ($50,000) | $0 |
WORKED EXAMPLE
| Reason | Example | What to do |
|---|---|---|
| Timing | One company records the invoice in June and the other in July | Agree the reporting cut-off and record the timing difference |
| Coding | Management Fees in one company and Admin Charges in the other | Map the accounts that represent the same internal activity |
| Tax | One side includes GST and the other amount is shown before GST | Compare the same tax basis and correct any posting error |
| Currency | The companies use different exchange rates | Apply the documented group rate and show the exchange difference |
PUT IT INTO PRACTICE
COMMON QUESTIONS
The elimination described here changes only the combined management report. Each company's Xero accounts remain unchanged. Ask your accountant about tax and statutory reporting for your circumstances.
No. They are needed when you combine related companies and want a group view. Each individual company's report should still show its transactions with the others.
Translate both sides under a documented group exchange-rate policy, then separate any exchange difference from the underlying matched transaction. Ask your accountant to confirm the appropriate policy.
Do not force them to balance. Identify whether the cause is timing, coding, tax, currency or a missing entry. Explain the difference and correct the source records where appropriate.
