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What are eliminations?
Eliminations allow you to remove the impact of intercompany transactions. Intercompany transactions are transactions between companies in a consolidated group. Eliminating intercompany transactions ensures that values are not overstated and financials are accurate at the group level.
For example, an elimination can be used to account for intercompany loans or management fees within a group.
Types of eliminations in Fathom
Fathom enables you to make two types of eliminations in consolidated groups:
Which type should you use?
The type of elimination you make depends on how your Chart of Accounts is set up in the underlying companies and consolidated group.
Chart of Accounts Set Up | Elimination Type |
You have an account(s) specifically for holding amounts from intercompany transactions | An automated full account elimination can be performed if an account only holds intercompany transaction amounts.
An automated elimination will remove the entire account value for the current period and all past and future periods in the group. The account will also be automatically removed from the group’s budget.
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You have an account(s) that contain amounts from intercompany and outside-company transactions | You can perform a non-automated account elimination if an account contains a mixture of intercompany and intracompany amounts. Non-automated eliminations are made with an Eliminations Company and enable you to eliminate only a portion of an account.
Eliminations made through an Eliminations Company must be manually entered each period. Additionally, if you want to remove amounts from the group’s budget, you can upload a budget for the Eliminations Company to remove budget values. |
💡 Smart Tip: You can also eliminate an account’s entire value with non-automated eliminations. Some users find it easier to keep track of eliminations if they perform all eliminations the same way, whether automated or non-automated.
How to Make Automated Full Account Eliminations
In the ‘Chart of Accounts’ of the consolidated group’s Settings, you can perform automated full account eliminations:
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The selected account(s) have been eliminated from the consolidated group. Unless you restore it, the account(s) will remain eliminated for future periods.
To restore the account, simply click on the red ‘Eliminate’ button again to open the eliminations menu for that account. Then select the red ‘Eliminated’ to restore the account.
❗Notice: The impact of eliminations made on the Profit & Loss will not automatically transfer to Current Earnings on the Balance Sheet. Eliminations or adjustments may need to be made on the Balance Sheet to match Net Income with the Change in Current Earnings.
How to Make Non-automated Eliminations
Fathom allows you to import an Excel spreadsheet that details specific elimination amounts. This spreadsheet will be imported as a separate Eliminations Company into your Fathom account.
You can then add the Eliminations Company to your consolidated group. The values in the Eliminations Company will be reflected in the Eliminations column of your consolidated financial statements and impact the group totals.
To make non-automated eliminations:
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💡 Smart Tip: We don’t want you to pay more for necessary eliminations and adjustments. Contact our team at support@fathomhq.com or via the in-app messenger to discuss the billing for your Eliminations company.
Creating an Eliminations Company
You must create an Excel file for an Eliminations Company to perform non-automated eliminations.
Example: Above is an example eliminations company showing account-specific eliminations.
In July 2021, $1,000 will be eliminated from the ‘Investment or Other Non-Current Assets’ and ‘Long Term Debt’ accounts in the consolidated group.
The account classification codes, 'ONCA' and 'LTD,' identify these accounts as ‘Other Non-current Assets’ and ‘Long Term Debt’ accounts, respectively.
Formatting the eliminations company:
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❗Notice: The impact of eliminations made on the Profit & Loss will not automatically transfer to Current Earnings on the Balance Sheet. Eliminations or adjustments may need to be made on the Balance Sheet to match Net Income with the Change in Current Earnings.
Double-check Eliminations Made
You can see a summary of all the eliminations performed for the current period in the Consolidated financial results, including eliminations Excel report.
To download the report:
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This will download the consolidated Profit & Loss and Balance Sheet. Within this report, you can hover over any automated, full account elimination to display the contribution from each company within the group.
💡Smart Tip: If you're working in the Chart of Accounts in the consolidated group's Settings, quickly access this report for the most recent consolidated period by scrolling to the bottom of the Chart of Accounts and selecting Download Preview.
Ensure Net Income matches the Change in Current Earnings
Eliminations made to the Profit & Loss do not automatically carry over to Current Earnings on the group's Balance Sheet.
When eliminations result in a change to the group’s Net or Retained Income, you may need to make a Current Earnings elimination to ensure the group’s change to Net Income is reflected in Current Earnings on the Balance Sheet.
To determine if the group's Net Income matches the Change in Current Earnings:
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A Current Earnings elimination can be made using the non-automated eliminations process.
Example:
Company A and Company B are in a consolidated group. The companies and group use the accrual accounting method.
Company A sells inventory to Company B for $1,000. Company A has the inventory valued at $500. So, Company A makes a $500 profit from the intercompany sale.
The intercompany sale is recorded on Company A's Profit & Loss:
Revenue: $1,000
Cost of Sales: $500
Net Income: $500
And on Company A's Balance Sheet:
Cash: $1,000
Inventory: -$500
Current Earnings: $500
At the end of the reporting period, Company B has not sold an item made from the inventory it purchased from Company A. Company B has also not sold the inventory to an entity outside of the group.
The following amounts are recorded from the intercompany purchase on Company B's Profit & Loss:
Revenue: $0
Expense: $0
Net Income: $0
Company B's Balance Sheet:
Inventory: $1,000
Cash: -$1,000
The intercompany transaction is eliminated from the consolidated group.
The group's Profit & Loss:
Revenue: $500 Eliminated
Cost of Sales: $500 Eliminated
Net Income: $500 Eliminated
The group's Balance Sheet:
Inventory: (-$500) Eliminated from Company A
Inventory: $1,000 Eliminated from Company B
The $500 elimination to the group's Net Income needs to be carried over to Current Earnings on the group's Balance Sheet. The Current Earnings elimination can be made using the non-automated eliminations process.
Eliminations are Not Balancing
Eliminations may not be balanced for a couple of reasons:
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Eliminations made in multi-currency consolidations often do not balance because the exchange rates used to translate accounts cause the intercompany accounts to no longer balance one another.
Multi-currency adjustments are often required in multi-currency consolidations to balance the balance sheet after eliminations.
A currency translation adjustment or a cumulative translation adjustment would be a specific amount adjustment that would allow you to get the Balance Sheet in balance for the consolidated group.
Learn how to make multi-currency adjustments from our Multi-currency Consolidation Adjustments article.
Next steps
Congratulations on setting up eliminations in your consolidated group! Any eliminations you made can be reversed, if necessary, at any time. Finish setting up your consolidated group for analysis, reporting, and forecasting by choosing from one of the next steps below:
What you want to do: | Next step in setup process: |
Ready to set up KPIs or Key Performance Indicators in your consolidated group? | |
Happy with your KPIs and ready to set targets in your consolidation? |
Additional knowledge & common questions