Intercompany Transactions in Dynamics 365 Business Central

Managing financial transactions between multiple entities within an organization can be complex, but Dynamics 365 Business Central simplifies and automates the process of intercompany transactions. Whether you're dealing with subsidiaries or internal partners, Business Central ensures smooth and accurate transfers of financial data. Below, we’ll explain how Dynamics 365 Business Central facilitates intercompany transactions and improves efficiency.

1. Simplifying the Creation of Intercompany Purchase Invoices

In this demonstration, we begin with the creation of a purchase invoice in the parent company. For example, if the parent company (Kronos USA) receives an invoice for services or expenses that are shared with a subsidiary, Business Central allows you to allocate that cost between the entities.

We select a vendor, then enter the details such as the rent expense. To assign a portion of that rent to the subsidiary, we use the intercompany partner code, which links the invoice to the subsidiary. This functionality allows the parent company to distribute expenses easily, ensuring that each entity is charged correctly.

Once the purchase invoice is completed and posted in the parent company, Business Central automatically generates the necessary journal entries, reflecting the financial impact in both the parent and subsidiary.

2. Sending and Approving Intercompany Transactions

After the parent company posts the purchase invoice, the next step is to send the transaction to the subsidiary for approval. Business Central provides an intuitive way to send transactions through an intercompany outbox. With just a few clicks, the parent company sends the transaction to the subsidiary for review and approval.

In the subsidiary company (Company 1), the transaction appears in the inbox. The subsidiary's accounting team can review the details of the transaction, such as the rent expense amount, and approve it. This approval process ensures that all parties are aware of the financial obligations before they are posted to the ledger.

3. Posting the Journal Entries and Reviewing the Ledger Impact

Once the transaction is approved by the subsidiary, the journal entries can be posted, following standard accounting rules. Business Central simplifies this process by providing access to an intercompany general journal. The system automatically posts the necessary journal entries, ensuring that both the parent and subsidiary’s ledgers reflect the correct debit and credit amounts.

For example, if the parent company allocated $1,250 of rent to the subsidiary, the ledger entries would show a debit to the subsidiary's rent expense account and a corresponding credit to accounts payable. Business Central provides full visibility into these transactions, allowing you to drill down into the chart of accounts to review the impact on both entities.

Key Benefits of Intercompany Transactions in Dynamics 365 Business Central

• Efficient Handling of Shared Costs: Business Central allows organizations to easily allocate expenses across multiple companies, reducing manual data entry and improving accuracy.
• Automated Transaction Flows: The system automates the creation, approval, and posting of intercompany transactions, reducing the administrative burden on accounting teams.
• Improved Financial Transparency: With features like outboxes and inboxes for intercompany transactions, Business Central provides full transparency and ensures that both parent and subsidiary companies are aligned in their financial processes.
• Increased Productivity: By simplifying intercompany transactions, businesses can streamline their workflows, allowing accounting teams to focus on more strategic tasks.

In summary, Dynamics 365 Business Central enhances the management of intercompany transactions, ensuring accuracy, reducing manual work, and improving the overall efficiency of financial operations across multiple entities.