One of the most common questions I get asked is
‘Do we need to define an Intercompany segment in our chart of accounts?’
The answer is:
‘We do not require an Intercompany Segment, but we still recommend defining one’.
Even if you do not have a great deal of intercompany activity at the moment, it is worth having one defined now as it is difficult to add one later.
Another question I have been asked is
‘Can I define the same segment to be my balancing segment (aka Company Code) and my Intercompany segment?’
The answer I give here is
‘I would very strongly advise against this, you will not get the benefits of an Intercompany segment by doing this’
For example, if we have a chart of accounts structure with 3 segments:
Company – Natural Account – Intercompany
Company Segment has the Balancing Segment qualifier and Intercompany has the Intercompany Qualifier.
We have three values for the company segment, 01, 02, 03 – they represent the Legal Entities. We have set up the natural account 555555 as our Intercompany payables and receivables account.
So if we have a journal like this entered in GL
01.789789.00 Dr $1,000
02.978978.00 Cr $1,000
Intercompany balancing will be called during posting and we will get two extra intercompany balancing lines added to balance the journal by balancing segment.
01.555555.02 Cr $1,000
02.555555.01 Dr $1,000
Balancing populates the Intercompany segment with the value of the trading partner to show who this intercompany activity is between, we can now easily run segment based reports and determin the intercompany activity between 01 and 02 and 02 and 01, ensure they eliminate and all that good stuff.
So what happens if you set the same segment to be both your balancing segment and your intercompany segment? Essentially nothing, intercompany balancing would detect this situation and not try to insert the value of the trading partner into the intercompany segment.
You may notice that in the Vision demo instances there are some chart of accounts with the same segment as both the Intercompany and Balancing segment(Vision Operations is one example!), this does not mean it is recommended. For R12, the Apps Demo Services team (Max Melbin and Günter Wemhöner) did a great job creating new chart of accounts, ledgers in the Vision database which are used in the R12 financials demo flows. The Ledger names they created start with ‘SSC’ if you want to take a look.