NetSuite Elimination Subsidiary : Balance Your Consolidated Books

For large organizations made up of a group of subsidiaries, easy and accurate financial consolidation is essential. For organizations using NetSuite the steps to consolidation are, fortunately, quick and streamlined.

One of the features that helps streamline this process is the NetSuite elimination subsidiary. This feature allows companies to remove selected intercompany transactions when viewing group reports at a consolidated level.

The elimination subsidiary facilitates this by posting balancing transactions that net off the results of intercompany trading.

An example of the placement of a NetSuite elimination subsidiary in a group hierarchy.

All leading financial systems have a way of dealing with intercompany balances but NetSuite have created a really tidy and organized solution.

In the following article I will shine the light on all aspects of the NetSuite elimination subsidiary. I will teach you what they are, how they work, and the key distinctions that set them apart from regular subsidiary records.

What is an Elimination Subsidiary?

A NetSuite elimination subsidiary is an entity used to post balancing journals that remove the affect of intercompany transactions at group level.

The NetSuite elimination subsidiary is a special type of limited functionality subsidiary. It doesn’t represent a specific legal entity, but instead acts as a body to hold balancing journals.

What are these journals balancing exactly? They are zeroing out the result of intercompany transfers, sales or loans.

Let’s say for example one of your subsidiaries sells goods to another and the value of this sale accounts for 20% of all receivables that period. If you leave this balance in, your group reports may be overstating your current assets that period by 25%. Why would we see this as overstating? Because the money is still within the group.

Subsidiary 1Subsidiary 2Elimination
Expenses
Interco Payables
Income
Interco Receivables
Interco Payables
Interco Receivables
An example showing which accounts an elimination journal entry might post to

In the elimination subsidiary you will post a journal netting off the value of these sales so at a consolidated level your sale is eliminated.

Large organizations with many levels to their group structure may have multiple elimination subsidiaries. This will allow accurate accounts to be reported at every level of consolidation.

How The NetSuite Elimination Subsidiary Works

When setting up and using a NetSuite elimination subsidiary there are a few things to consider. After all, it is not an actual legal entity.

Setting Up an Elimination Subsidiary

To create an elimination subsidiary, navigate to Setup > Company > Subsidiaries > New.

Enter a name for your subsidiary. I would normally create a name that references the parent of the elimination. In the example below, I am referencing James and Co Ltd, which is the entity the elimination postings roll up in to.

An example of a recommended naming convention for a NetSuite elimination subsidiary

Select the parent subsidiary from the drop down. Remember, the elimination postings will need to have an effect at a consolidated level. You need your elimination to roll up in to the same parent as the trading subsidiaries.

Next you can check the Elimination checkbox. This will disable the following fields –

  • Country (and State)
  • Currency
  • Edition

All this information will derive from the parent subsidiary and cannot be changed. In my example above, James and Co Ltd is a British company with a GBP base currency. James and Co Ltd Elimination will also, therefore, use GBP and have United Kingdom as it’s country.

A screenshot of the subsidiary record of a NetSuite elimination subsidiary. This screenshot demonstrates how some of the fields are disabled once the elimination checkbox is ticked.

The remaining fields on the subsidiary record are not so relevant in the case of eliminations. Since it is not a legal entity you won’t have information such as address, company registration or tax number.

It is normal for the remainder of the record to stay blank.

When thinking about setting up elimination subsidiaries, bear in mind that they do not count towards your total number of subsidiaries.
NetSuite has a general limit of 250 subsidiaries but this does not include eliminations.
Elimination subsidiaries also do not take up your subsidiary licenses.

Posting to a NetSuite Elimination Subsidiary

There is nothing unique about posting a journal to an elimination subsidiary. You will create a journal like any other by navigating to Transactions > Financial > Make Journal Entries.

Select the elimination from the Subsidiary drop down field. The currency will default to the base currency.

The header of a NetSuite journal entry showing the NetSuite elimination subsidiary selected and currency defaulted to the base currency

The debit and credit should be the impact of the trade in each entity. For example if goods were sold by one subsidiary to another, you will probably need to debit your payables and credit your receivables.

This is, of course, just one example and there are many scenarios in which you might want to post an elimination.

Most organizations aren’t going to manage the creation of elimination journal entries themselves. Manually calculating and posting these is going to be time consuming and provide lots of opportunity for error.

The Automated Intercompany Management feature in NetSuite streamlines this process. This feature adds an additional step to the Period Close checklist which automatically calculates and creates elimination journal entries for all your subsidiaries.

Automated Intercompany Management also automates other aspects of intercompany trading such as the creation of representing entities and setting default AP and AR accounts. Check out this dedicated article to learn more about this feature.

Enabling the automated intercompany management feature in NetSuite.

Differences Between Elimination Subsidiaries and Regular Subsidiary Records

Although we have discussed the subsidiary record, there are also many operational differences between regular subsidiaries and eliminations.

  • Only journal entries can be posted – Transactions other than journals cannot be posted to a NetSuite elimination subsidiary. To use this feature properly you only need to post journals anyway.
  • Cannot be selected on a bank account or credit card account record – There is no reason you should want to do this so don’t panic.
  • Cannot be selected on items records – Again, this shouldn’t be a concern.

As you can see from the above, NetSuite have stopped you from using the elimination subsidiary for any purpose other than an elimination subsidiary. I think that’s fair since you’re not paying for it!

They have a specific purpose and should only be used for this.

NetSuite Elimination Subsidiary : Frequently Asked Questions

What is a NetSuite elimination subsidiary?

An elimination subsidiary in NetSuite is a subsidiary used solely to post balancing journals that remove the affect of intercompany transactions at group level.

How do I post to an elimination subsidiary in NetSuite?

A standard journal entry can be posted to an elimination subsidiary. This can be posted manually or automatically using the Automated Intercompany Management feature.

How much does a NetSuite elimination subsidiary cost?

If you are using NetSuite OneWorld, an elimination subsidiary will not consume one of your subsidiary licenses. There is no additional cost to set up an elimination subsidiary.

Does NetSuite automatically create elimination subsidiaries?

No, NetSuite does not automatically create elimination subsidiaries. If they are a requirement at your organization, they must be created manually, preferably at each level of consolidation.

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *