Intercompany tie-out — detailed mechanics
Why a one-sided intercompany result is almost always a location-coding error, the client's $100,000 materiality threshold, and how to run the report.
Run the Income Intercompany and Tie-Out Report for each balance sheet review, for all RCY (and correspondingly RRS) locations.
Source: Rackson_RRS_RCY_Review_Process.docx section 26.
Run this as part of finalizing the balance sheet — not as an afterthought.
What the report is for
To confirm that intercompany postings between the RRS and RCY entities net to zero, or at minimum stay under the client's established materiality threshold of $100,000.
Mike specifically wants it kept below that level because larger imbalances start to create uncomfortable questions if a bank or other stakeholder were to ask about it.
Why a one-sided result is almost always a coding error
Mechanically, Intacct requires a due-to/due-from source whenever a transaction is posted that spans two different entities. You cannot simply post one side of an entry to one entity's location without the offsetting side automatically hitting the other entity — provided the accounts and locations involved are correctly assigned to their respective entities.
Because of that structural requirement, a one-sided result almost always indicates a location-coding error — an entry posted to a location that is actually assigned to the wrong entity — rather than a genuine, uncorrected intercompany imbalance.
In other words: the risk isn't that someone can post an unbalanced intercompany entry on purpose. The risk is someone posting to the wrong entity's location by mistake.
Illustrative example. The client's own period-end GL adjustment entries were occasionally the source of one-sided intercompany balances in past periods — an amount recorded on only one side of an intercompany relationship. The client has since corrected the way those entries are prepared, but this remains an area to watch each period.
Practical tip
Default the report to run for RCY (or the applicable concept) locations rather than leaving it on a default "all" view — the location-specific version is what surfaces the actual coding issue.
The underlying account
The intercompany balance is carried in acct 12505: RRS holds a debit balance, RCY holds an equal and opposite credit balance, netting to $0 as of period end.
Common sources of imbalance:
- Intercompany charges posted in one entity but not the other
- Timing of allocation entries
- On the RCY side specifically: labor allocations from the G&A reclass, shared service charges, or management fee accruals
Do not close the period with an imbalanced intercompany account. Trace the imbalance to the most recent intercompany activity or G&A allocation and post offsetting JEs before submitting finals.
Related
- RRS receivables workpapers — the 12505 preparer steps (RRS side)
- RCY GL adjustments workpapers — the 12505 preparer steps (RCY side)
- Labor reclass and bonus — the G&A allocation that most often causes an imbalance
- Troubleshooting — "the intercompany tie-out isn't at zero"