Intercompany Accounting in Dynamics 365 Finance: Brief Guide

As soon as your company starts expanding beyond one legal entity, intercompany accounting turns into a full-time headache. You’re not just moving money around — you’re juggling multi-entity transactions, FX differences, and compliance rules that make you wish you’d stayed small forever.

That’s where Microsoft Dynamics 365 Finance and Business Central come in. They basically automate the nightmare — syncing intercompany transactions, cutting down on manual reconciliations, and giving finance teams one clean view of what’s actually going on (instead of five conflicting spreadsheets).

What Is Intercompany Accounting?

Think of it as bookkeeping between siblings — Company A sells to Company B, both under the same parent, and everyone needs to record it properly so the family books balance out. The tricky part? Making sure you don’t accidentally count internal profits when consolidating.

According to PwC’s Consolidation and Equity Method Guide, failure to properly handle intercompany transactions can lead to misstated consolidated financials and regulatory non-compliance. Common intercompany transactions include:

• Intercompany sales and purchases
• Shared expenses or cost allocations
• Loan and interest arrangements
• Fixed asset transfers
• Royalty or service charges

Without automation, these entries are often prone to human error—especially when multiple currencies, tax rules, or accounting standards come into play.

Challenges in Managing Intercompany Transactions

Modern enterprises often face several pain points when managing intercompany accounting manually or across disconnected systems:

Reconciliation Bottlenecks: Matching transactions between multiple entities requires extensive manual effort, leading to delays in financial close.

Inconsistent Data: Different systems or charts of accounts across subsidiaries can cause mismatched entries.

Currency and Tax Complexities: Handling multi-currency environments introduces FX gains/losses and tax complications.

Limited Audit Trail: Manual journal entries make it difficult to trace intercompany transactions for audit or compliance purposes.

Consolidation Delays: Intercompany eliminations and adjustments slow down financial consolidation, impacting timely reporting.

These challenges underscore why enterprises are turning to ERP Implementation and Support solutions like Dynamics 365 Finance and Business Central for centralized control and automation.

Intercompany Accounting in Dynamics 365 Finance: Overview

Finance and Operations (D365 F&O) provides a robust Intercompany Accounting framework that automates the flow of transactions between legal entities.

The module supports:

• Automatic creation of reciprocal entries across entities.
• Cross-company journal posting and invoice processing.
• Intercompany settlements with currency revaluations.
• Configurable policies for pricing, markups, and cost-sharing.

With this capability, businesses can post transactions in one company and automatically reflect them in another—reducing duplication and ensuring real-time accuracy.

For example:

If you create an intercompany journal entry in Company X to record a payable, Dynamics 365 automatically creates the corresponding receivable in Company Z.

This not only saves time but also eliminates reconciliation issues between subsidiaries.

Step-by-Step: Setting Up Intercompany Accounting in D365 Finance

Below is an overview of the setup process for implementing Intercompany Accounting in Dynamics 365 Finance.

1. Enable Legal Entities

Ensure that each subsidiary or division is configured as a legal entity in D365. Each entity can have its own currency, ledger, and chart of accounts.

2. Define Intercompany Relationships

Navigate to General Ledger > Setup > Intercompany Accounting, and establish relationships between entities. Here, you specify:

• Partner company
• Accounts for due to/from
• Transaction types (journals, AR/AP, etc.)
• Default dimension values

3. Set Up Intercompany Accounts

Define intercompany AR/AP accounts to handle payables and receivables between entities automatically.

For example:

Company A → Receivable account: 130100 – Intercompany Receivable

Company B → Payable account: 210200 – Intercompany Payable

4. Configure Intercompany Journal Posting

When posting a journal in one entity, select the Intercompany journal option to automatically post mirrored entries in the corresponding entity.

This feature ensures that debit and credit sides remain balanced across companies.

5. Automate Settlement and Elimination

During consolidation, D365 Finance allows for automatic intercompany elimination entries—removing internal profits or balances before generating consolidated financial statements.

Intercompany Transactions Journal Entries Example

Dynamics 365 automatically generates both entries simultaneously, ensuring perfect synchronization across ledgers.

Intercompany Accounting in Business Central

While Dynamics 365 Finance serves large and global enterprises, Business Central offers similar functionality tailored for mid-market organizations.

With Dynamics 365 Business Central, companies can:

• Automate intercompany postings between multiple databases or companies.
• Share master data and dimensions.
• Use Intercompany Inbox/Outbox to send and accept transactions across companies.
• Maintain visibility into all intercompany balances.

This ensures that both enterprise-level and mid-sized organizations can benefit from automated intercompany management—within their respective Dynamics ecosystems.

Best Practices for Intercompany Accounting

Getting intercompany accounting right isn’t just about setup — it’s about discipline and consistency across entities. A few foundational steps go a long way:

Standardize Your Chart of Accounts: Before automating anything, make sure your chart of accounts is aligned across entities. Without this, reporting will always be messy.

Automate Reconciliations: Use D365’s intercompany posting automation to take manual balancing out of the picture. The fewer spreadsheets in the process, the better.

Leverage Workflow Approvals: Cross-company journal entries should never bypass governance. Build approval workflows to keep compliance and audit trails intact.

Use Multi-Currency Features: Configure exchange rate types carefully. Many ERP implementations go off-track here when rates aren’t standardized across entities.

Audit Regularly: Run intercompany reports often. Reconciliations and eliminations are not “set and forget” — they need ongoing validation.

Following these practices helps teams close faster, maintain compliance, and get a clearer picture of overall financial health.

Why Intercompany Accounting in Dynamics 365 Finance Matters

Most organizations underestimate how much time and risk they can eliminate by standardizing these workflows inside Dynamics 365. Once configured properly, the system does the heavy lifting — finance teams can focus on analysis instead of reconciliations.

Final Thoughts

Intercompany transactions are the lifeblood of multi-entity operations — but managing them manually almost always creates timing gaps, compliance issues, and reconciliation pain.

With Intercompany Accounting in Dynamics 365 Finance, companies can unify postings, improve accuracy, and gain real-time visibility across global operations.

Whether you’re on Dynamics 365 Finance or Business Central, having the right implementation partner makes all the difference. A team like Dynamics Square, experienced with complex financial structures, can help you configure intercompany automation correctly from day one — so your finance team can focus less on chasing entries and more on driving performance.