Intercompany Eliminations · Track 5 · Tutorial 6 of 9

Remove unrealised profit in inventory

When one group company sells goods to another at a profit, the group hasn’t earned that profit until the goods are sold outside the group. At each month end, the margin in goods still held comes out of stock and back into cost of sales.

You will needUnrealised Profit switched on and the accounts mapped, as in the Set up intercompany track. The value of goods each company still holds from other group companies at the month end, and the seller’s margin on them.

By the endThe SGD 2,000 margin in goods Company B still holds from Company A removed at 31 October, with November’s position entered the same way.

1Work out the margin

Company A sells goods to Company B at cost plus 25%. At 31 October 2026, Company B’s 1400 Inventory still holds goods bought from Company A for AUD 11,160.71, SGD 10,000.00 at 0.8960. Company A’s margin in them is 10,000.00 × 25 ÷ 125 = SGD 2,000.00.

Company B holds AUD 11,160.71 of goods bought from Company A, with SGD 2,000 of Company A’s margin in them: debit Company A’s cost of sales, credit Company B’s inventory — Cost of sales debited, inventory credited.

This entry	The margin in goods still held at the month end. The sale itself is eliminated separately, under Sales / Purchases / Services or Inventory Transfers — see Eliminate sales, purchases and services.
Goods sold outside the group	Their profit is the group’s. Leave them out of the calculation.

2Enter the month-end position

Open Intercompany → Unrealised Profit, choose Oct-2026, and click + Add entry.
Enter the Elimination ID URP-A-B-2026-10, keep the Date 31 October 2026, and enter the Description Margin in Company B stock from Company A, 31 October 2026.
Debit Company A’s 5000 Cost of Sales, SGD 2,000.00 at 1.0000.
Credit Company B’s 1400 Inventory, AUD 2,232.14 at 0.8960, and click Confirm.

Under Unrealised Profit, an entry’s lines can use Inventory, Direct Costs and Revenue accounts.

3Know what happens next month

The list now shows URP-A-B-2026-10 and also REV-URP-A-B-2026-10, marked Auto reversal and dated 1 November 2026. It mirrors every line of the entry, so October’s margin is added back at the start of November. You don’t edit it: editing the entry rewrites it, and deleting the entry removes it.

At 30 November, work out the margin in goods from Company A that Company B still holds then.
Enter it under Nov-2026 as a new entry, URP-A-B-2026-11, the same way.

So each month’s entry is that month’s whole position, not the change. As the goods are sold outside the group, the position falls, and the profit reaches the group’s figures in the month they are sold.

Check

On the group’s Balance Sheet for October with Show Entities on, Inventory in the group column is SGD 2,000.00 lower than the companies’ total, and cost of sales on the Profit & Loss is 2,000.00 higher.

4If something goes wrong

Unrealised Profit isn’t in the Intercompany menu	It is off in a new group. Switch it on, as in Switch on and add intercompany types.
Period Nov 2026 is locked. Contact administrator.	The reversal would fall in a locked month. Ask an administrator to unlock November, or enter the position before the next month is locked.
Inventory is reduced twice	The change was entered instead of the whole position. Each month’s entry is reversed the next month, so enter the full margin still held.
… cannot be used in this elimination type.	The account isn’t Inventory, Direct Costs or Revenue. Check its type in the company’s chart.

Want more detail? See the documentation

Elimination Entries Intercompany Types

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