intercompany transactions

Intercompany transactions occur when different divisions or subsidiaries within the same parent company exchange goods, services, or funds. For example, if one branch sells products to another branch, that sale is an intercompany transaction. These transactions are important for tracking overall performance and ensuring accurate financial reporting, as they can affect profit margins and tax calculations. Proper accounting treatment is essential to avoid distortions in financial statements, ensuring that profits are not double-counted when consolidating the financial results of the entire corporation.