Intercompany Journal Entries - Product Advisory

November 2021

Overview

With this release, transferring leases between legal entities can generate intercompany journal entries on the Ledger Export. Enabling these transfers depends on the ledger’s configuration using the new feature that allows for intercompany transfers. Intercompany journal entries establish intercompany payable and receivable relationships between the transferor and transferee. Transferring a lease from one legal entity to another is accomplished by changing the deal’s Entity on the Participants tile of the Deal Summary workspace and supplying an effective date for the change as illustrated below:

However, there are ledger configuration steps that must also be taken to surface the intercompany journal entries on the Ledger Export. The next section of this product advisory explains how a ledger should be set up to accommodate Intercompany.

Ledger Configuration and New UI Fields

As part of the work done to accommodate intercompany journal entries the Ledger configuration workspace includes the new optional features of ‘Drives Intercompany’ and ‘Intercompany’ Segment Type.

Note: Changes to any ledger configuration currently do not respect month-end-close. What this means is that if a retroactive reallocation is performed using historical effective date in a closed period, the resulting reallocation entry will manifest as an adjusting entry in the first open period. HOWEVER, if you re-run a Ledger Export for a prior period, it will reflect the new Intercompany segment value starting from lease inception. i.e., The old Intercompany segment value will be overwritten.

Drives Intercompany Checkbox

Users will notice a new checkbox labeled ‘Drives Intercompany’ available for all segments when configuring a ledger number. The default configuration does not have the Drives Intercompany box checked for any segment.

Intercompany Segment Type

In addition to the above checkbox, users will notice a new segment type of ‘Intercompany’ added to the ledger configuration workspace. To generate intercompany journal entries, you must use ‘Drives Intercompany’ and the ‘Intercompany’ segment.

Important: When Drives Intercompany is checked, adjusting entries will be generated to establish missing or previously reversed incorrect intercompany journal entries

Rules of Use

• Only one segment can be checked at a time.

  • If trying to select the box for a different segment, then only the last selected box is saved.

  • Unchecking of the box is allowed.

• The ability to check the box is limited to segments with Type = Company only.

  

• The ability to check the box is limited to segments with Scope = Deal only.

  

• If one segment is checked then there must be an additional segment with a Type of Intercompany.

  

  • The configuration cannot be saved if an Intercompany type is not configured when the Drives Intercompany box checked.

    • This validation error will appear if this requirement is not met, "You must have one Segment Type of Intercompany when using the Drives Intercompany checkbox."

      

  • If no Drives Intercompany box is checked then an Intercompany segment is not required, nor should this Type be used if not intending to use the Drives Intercompany feature.

• Only one Intercompany segment type is allowed per ledger.

  This validation error will appear if this requirement is not met, "Only one segment type of Intercompany is allowed."

  

• If the segment type is Intercompany, then the Role, Attribute, and Scope fields do not apply and will not have any drop-down options for these fields.

• If one segment has the Type of Intercompany another different segment must have the Drives Intercompany box checked for the ledger to be allowed to be saved.

  • This validation error will appear if this requirement is not met, "You must have one segment selected to Drive Intercompany when using the Type of Intercompany as a Segment."

    

• If a ledger number already consists of 11 segments, one of the segments will need to be replaced with the Intercompany type to use the intercompany features.

Intercompany Clearing Amount

Changing the deal’s Entity effectively reallocates all balances from one entity to another. This is accomplished by writing off the deal on the transferor’s entity and reestablishing balances on the transferee’s books. If the write-off results in any gain/loss, that amount represents the Intercompany payable/receivable value which appears on ledger export with “Intercompany Clearing” as account description. The intercompany relationship between affected parties is specified by automatically populating the entity segment ledger code of the counterparties in the newly designated Intercompany Segment and for each leg of the “Intercompany Clearing” account.

The example below shows intercompany journal entries for a lease transferred from one entity, with ledger segment 110, to a new entity, with ledger segment 185, effective May-10-2021: