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Automatic inversion of documents in subsequent periods

The document type can specify whether the manual or automatic postings can be inversed in subsequent periods. Those periods are, depending on consolidation type, assigned to the task. When the annual consolidation is configured then the subsequent period is the beginning of the following fiscal year. In the case of quarters, the inversion is made in subsequent quarter. Please note that automatic reversal of manual inversions can be independent from the period status administration. This means that the closed period in the following period does not have to be reopened. The inversion occurs in the current closing period for the documents that have been posted by a consolidation task in the previous period.

This functionality is similar to a large extent to “automatic inversion in subsequent periods” as had been offered by SAP. The main difference between the two is in the timing of the inversing entry. Previously, the inversing entries were made in the subsequent period at the same time when the original entries were posted. Currently, the inversions are posted only in the subsequent period after executing the task of period initialization for both manual and automated document type entries. With automatic entries for which the document type has been configured there is an additional check for preexisting inversions when the consolidation task is executed. When none are found then the inversions are posted in the current run. The inversion entries are only then created when there have  not been any created by end user. This allows for a better data analysis, when compared with the previous functionality.

Inversions cause the withdrawal of the prior period entries. However, they are not simply reversals, since the entry is still fully valid at the posting levels 10 and 20, and in the consolidation run of the subsequent period the cumulative balance is removed. When the inversing document in the subsequent period is considered together with postings of the current run, the correct accounting is the elimination of intercompany balances in the amount of prior period…

Figure

In intercompany eliminations the system eliminates the receivable through a credit entry and the payable through a debit. In the following period, the first task is that of period initialization. What follows is the task of intercompany eliminations, during which the system checks whether the document type has configured the inversion and whether the inversion has already taken place in the selected period. The documents configured for inversion in the document type are inversed. The inversion backs out the prior period elimination through an automatic entry. The inversion posting neutralizes the correcting posting at the level 20 and the system now eliminates the intercompany due and from balances in their entirety in the subsequent period.

In the subsequent period the intercompany due to/from balance increases to 110. The receivable is simultaneously revalued by 10. This causes a clearing netting difference in eliminations.  From the legal enterprise’s perspective there is no external receivable or payable, so the clearing difference also needs to be removed in the consolidated statements. The system makes the following elimination entry:

Dr intercompany payable         110
Cr intercompany receivable            100
Cr intercompany netting                  10

The entry has a P&L and tax consequences. The elimination entry along with P&L impact is inversed in the following period. Since the intercompany balances have not changed in the current period, the elimination entry is exactly the same as previously.

Moving to the following period, the prior period elimination documents are inversed. The submitted financial data of the Consolidation Unit with intercompany due from balance require an additional revaluation of 10. When looked at from the posting level 20 correcting entries point of view, they offset with eliminating entries. In this period, intercompany due from are eliminated with 100 and due to with 120, along with 20 going to P&L. When the eliminations are considered from the current period perspective, the elimination document is offset with the inversing document. The eliminations are:

Dr intercompany payable         120
Cr intercompany receivable            100
Cr intercompany netting                  20

In the new fiscal year, the first task is for carrying the balances forward. The carrying forward accounting applies especially to elimination postings at level 20. Special attention needs to be paid to balances of the FS Item 25712000 net profit (loss) year to date at the posting level 20. Those are configured to be carried forward into FS Item 25711000 – retained earnings from prior years. The nettings from the prior periods lead to reduction of retained earnings. After the carry forward task follows the period initialization task. In it, the entries for eliminations and P&L netting are booked with the opposite sign even though they apply to the closed-out fiscal year. When netted against eliminations in the first period of the new fiscal year, they result in 0.

In the first period of the new fiscal year the due from balance remains at 100 and due to balance at 120. During elimination task system nets those balances against each other and books a netting entry. The following entry is created:

Dr Intercompany due to             120
Cr Intercompany due from               100
Cr Intercompany netting                    20

A new entry impacting the P&L accounting for the difference of 20 is not allowed as the correcting elimination entry would duplicate the net result. From inversion of the document there is a Cr amount for the netting for 20, so that both documents offset each other and are neutral in the final result. In the subsequent period of the new fiscal year, Consolidation Unit is revalued further by 10. The balances are then eliminated as follows:

Dr Intercompany due to             130
Cr Intercompany due from                100
Cr Intercompany netting                     30

Since the inversion functionality of the balance portion of 20 already has the Cr balance, the net result is only in the amount of the change of 10.

Attention needs to be paid to a special treatment of balance differences in revenue and expense accounts. At the acquisition, the impact neutral differences, are handled the same way as Other Comprehensive Income. When the functionality of automatic inversions in subsequent period is not turned on the system checks if there are any correction entries at the level 20. When there are any, during consolidation only the changes subject to revaluation are produced. When the inversion is automated then the correcting entries of level 20 are inversed. When the system checks for the existing relationships if they have to be posted at level 20 always the total amount gets booked. When there is an intercompany difference (float) then it is not the only difference against the prior period, which may seem a wrong approach. When, however, we consider the automated inversion of the documents of the prior period with total balances, then also the difference is netted appropriately. This assumes that the difference is not debited or credited out as Invenue or expense from intercompany eliminations. The difference should be accounted for as a special item which in case of eliminations is shown as valuation difference from intercompany eliminations.

In configuration of document types we determine how the document inversion is handled at yearend. One requirement is to limit the inversion only to the current fiscal year. This applies to eliminations of intercompany sales, investment equity, and other intercompany revenues and expenses, because the profit and loss statement is for a given period. The accumulated revenue and expense balances through the last period of the fiscal year, e.g. the fourth quarter,  are not carried forward, so the inversion is then limited to the intra-period reporting. Another configuration of the document type may allow inversion into the fiscal year which is especially relevant for intercompany eliminations.

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