If your organization runs more than one legal entity in Microsoft Dynamics GP, you will sooner or later need to record transactions between them. One company pays a shared invoice, another provides services to a sister company, or head office allocates costs across subsidiaries. Without a proper process, each of these means two separate journal entries in two separate companies, and plenty of room for mistakes.
Dynamics GP’s Intercompany Processing feature is designed to solve this. You enter a transaction once in one company, and GP automatically creates the matching entry in the other company, using Due To and Due From accounts to keep both sets of books balanced.
The setup itself is not complicated, but small decisions made at the start can cause reconciliation problems for years. In this guide, we explain how intercompany works in GP, how to set it up properly, and the common pitfalls we see when reviewing GP systems for our clients.
How Intercompany Processing Works in Dynamics GP
It helps to recognize a few terms that Dynamics GP uses specifically for intercompany:
- Originating company: The company where you enter the transaction.
- Destination company: The company that receives the related entry.
- Due To account: A liability account that records what one company owes another. This is often called Intercompany Payable.
- Due From account: An asset account that records what one company is owed by another. This is often called Intercompany Receivable.
Here is a simple example. Company A pays a $10,000 marketing invoice, but $4,000 of it belongs to Company B. In Company A, you enter the invoice and distribute $4,000 to Company B’s marketing expense account. When you post:
- Company A records the full payable, its own $6,000 expense, and a $4,000 Due From Company B.
- Company B records the $4,000 marketing expense and a $4,000 Due To Company A.
Both companies stay balanced, and the Due To and Due From balances should mirror each other exactly.
There are two points worth knowing from the start. Intercompany transactions can only be originated from General Ledger or Payables Management, and the destination company always receives a General Ledger entry, not a payables or receivables document.
Before You Start: Preparation Matters
Before you open the setup window, take time to plan. In our experience, most intercompany problems come from skipping this step.
- Complete the basic setup: System Manager, General Ledger and Payables Management in every company involved.
- Map your intercompany relationships: Write down which companies transact with each other and in which direction. A simple grid works well.
- Decide your account structure: Agree on Due To and Due From accounts for each relationship. Many organizations use a separate account for each related company, such as Due From Company B and Due From Company C, which makes reconciliation much easier.
- Create the accounts: Each company’s chart of accounts and make sure they are active.
- Check functional currencies: If any company uses a different functional currency, there are extra steps to complete, which we cover below.
- Confirm user access: Users entering intercompany transactions need appropriate security access in the companies involved.
Step-by-Step: Setting Up Intercompany Relationships
Once your plan is ready, the setup itself is quite straightforward.
- Open the Intercompany Setup window from Microsoft Dynamics GP > Tools > Setup > System > Intercompany.
- Select the Originating Company.
- Select the Destination Company.
- Enter the Originating Company Due To and Due From accounts. If you type the account number, enter it without formatting. GP applies the correct account format for that company automatically.
- Enter the Destination Company Due To and Due From accounts.
- Mark Enter Corresponding Company ID if you want to record the related company ID on each transaction.
- Choose Save.
Repeat these steps for each relationship. Remember that a relationship is defined from the originating company’s point of view, so if both companies need to start transactions with each other, you will need to set up both directions.
You can print the Intercompany Setup List from the setup window to review all relationships for an originating company. We strongly recommend printing and checking this list with your finance team before going live.
Entering and Posting Intercompany Transactions
In General Ledger: Open Transaction Entry, mark the Intercompany option and select a batch. In the distribution lines, enter the company ID (the Co. ID field) for any line that belongs to another company, then select the account from that company’s chart of accounts.
In Payables Management: Enter the transaction in Payables Transaction Entry as usual, then open the distribution window and assign the appropriate lines to the destination company.
Post intercompany transactions using batch-level posting. Before posting, print the edit list. It shows the breakout of the Due To and Due From entries that GP will create, which is the best moment to catch errors.
Working with Multiple Currencies
If your companies use different functional currencies, intercompany needs extra care:
- Each company’s functional currency, and the currencies used in the transaction, must be set up and linked correctly in every company involved. Microsoft provides a specific setup process for this situation, and skipping it is a common cause of posting errors.
- Exchange rates must be valid for the posting date. If the posting date differs from the document date, the rate’s expiration date must fall after the posting date.
- Multicurrency intercompany transactions must be entered in single-use batches. They cannot be saved in recurring batches.
If currencies are part of your structure, it is worth testing a few transactions in a test company before relying on the process.
Common Pitfalls and How to Avoid Them
Here are the issues we see most often when analyzing intercompany setups for GP customers:
1. Using One Due To/Due From Account for Every Company
Dynamics GP allows only one Due To and one Due From account for each company within a relationship, but nothing stops you using the same account across several relationships. If you do, all intercompany balances end up mixed together, and summarizing who owes whom becomes a manual exercise. Separate accounts per related company save a great deal of time at month-end.
2. Setting Up Only One Direction
If Company B needs to charge Company A but only the A-to-B relationship exists, users cannot enter the transaction, or they fall back to manual journal entries.
3. Forgetting to Mark the Transaction as Intercompany
If a General Ledger entry contains distributions for another company but the Intercompany option is not marked, GP will flag an error on the edit list and the batch will not post as expected.
4. Distribution Amounts That Do Not Balance
Dynamics GP warns you when at least one distribution amount for a company does not match the corresponding company. Review the distributions carefully, because every amount sent to a destination company must be balanced by the related entries.
5. Using Inactive, Unit or Allocation Accounts
Due To and Due From accounts cannot be inactive accounts, unit accounts or unit allocation accounts. If an account is later made inactive, intercompany posting will fail.
6. Closed Periods in the Destination Company
If the fiscal period is closed in the destination company, the related entry cannot post. Coordinate period-end closing across all entities.
7. Correcting Entries the Wrong Way
The General Ledger “Back Out and Correct” feature is not available for intercompany journal entries. Corrections must be entered manually as new intercompany transactions, so make sure your team knows the right process.
8. Not Reconciling Regularly
In a healthy setup, Company A’s Due From Company B always equals Company B’s Due To Company A. Reconcile these balances every month, not just at year-end. Small differences are easy to fix early and very hard to trace later.
9. Forgetting Eliminations at Consolidation
Intercompany balances and revenue or expense between entities must be eliminated when you prepare consolidated financial statements. Build this into your reporting process, whether you use Management Reporter or another tool.
If any of these sound familiar, our Dynamics GP support team can review your setup and help you clean up past balances.
Frequently Asked Questions
Can I Create Intercompany Transactions from Receivables Management in Dynamics GP?
No. In standard GP, intercompany transactions can be originated from General Ledger and Payables Management only. The destination company receives a General Ledger entry.
Do I Need to Set Up Both Directions of an Intercompany Relationship?
Yes, if both companies will start transactions with each other. Each relationship is defined from the originating company’s side, so the reverse direction needs its own setup.
How Do I Correct a Posted Intercompany Journal Entry?
Enter a new intercompany transaction that reverses or adjusts the original. The Back Out and Correct feature in General Ledger is not available for intercompany entries.
Does Intercompany Work with Different Functional Currencies?
Yes, but it requires additional setup across all companies involved, valid exchange rates for the posting date, and single-use batches for multicurrency intercompany transactions.
Looking Ahead: Intercompany in Business Central
Microsoft will end product updates, tax updates and technical support for Dynamics GP on December 31, 2029, so many multi-entity organizations are already planning their next step.
Dynamics 365 Business Central handles intercompany differently. It supports intercompany partners, intercompany journals and intercompany sales and purchase documents, so one company’s purchase order can create a matching sales order in the related company. It also includes built-in consolidation tools for multi-company reporting. For groups with frequent transactions between entities, this can remove a lot of manual work.
If you are planning a move, mapping your current intercompany relationships and cleaning up historical balances is an important early step. You can read more about the process on our Dynamics GP to Business Central migration page, or explore the full set of Business Central features.
How Nevas Technologies Can Help
At Nevas Technologies, we have more than two decades of experience with Microsoft Dynamics and have worked with many multi-company organizations on GP. We can help you design your intercompany structure, configure Due To and Due From accounts correctly, troubleshoot posting errors and reconcile historical balances.
Our Dynamics GP training gives your finance team the confidence to enter and correct intercompany transactions properly, and our Business Central consultants can show you how intercompany works in Business Central when you are ready to move.
Need help with your Dynamics GP intercompany setup? Contact our team, or schedule a demo to see multi-company accounting in Business Central.
