Ian Paul Constantino
BSMA 3-1
1. Describe an inter-company sale?
Inter-company sales in SAP (Systems Applications and Products), ECC (ERP Central
Component) is when the company code that is determined by the delivering plant at goods
issue time differs from the company code determined by the sales organization at billing
time.
In essence, inventory was sold that belonged to a different legal entity. In order to “balance
the books”, after posing goods issue from the delivering plant, two billing documents need to
be generated.
The first billing document, which is issued to the customer, is used to record the revenue and
accounts receivable in the company code that is related to the sales organization of the sales
order. The second billing document is used to record the “intercompany” sales. That is, the
company code related to the plant that provided the inventory bills the company code related
to the sales organization that received “credit” for the sale.
2. What is an upstream sale?
The upstream sale is when a subsidiary company sells land, inventory, goods, services, etc. to
the parent company, it is known as an upstream sale. In such a sale, the subsidiary company
records the transactions and profits or losses occurring from the transaction.
If the parent company resells the inventory to another company that is non-affiliated, the
eliminating entries, the entries used for adjusting the total of individual balances of the
separate consolidated companies to show the amounts that would appear if the companies
were actually a single company in the consolidation, is the same as a downstream sale. It is
not necessary that the parent has to resell. An upstream sale is basically an intercompany
sale.
For example, Company A is the parent company of Company B. Company B sells inventories
to Company A. This is called an upstream sale
3. What is a downstream sale?
A downstream sale is associated between related companies, for example, sales by a parent
company to its subsidiary company. This sale results in the transfer of goods or services,
usually inventory, by the parent to its subsidiary. The parent company records this sale of the
transaction as profit on its financial statement.
Since the sale of inventory from the intercompany transaction is recorded on the parent
company’s records, the consolidated income and shareholders’ claim of profits reduces by the
full amount of unrealized profits for only the controlling interest’s income, i.e. parent
company.
For example, Company A, the parent company, sells inventory to its subsidiary Company B.
This inventory is valued at $1,000. Profit from the sale of inventory is $400. This profit is
recorded on company A’s financial statement. This profit is deducted only from income from
the parent company to avoid mismatch during consolidation.
REFERENCES:
https://blogs.sap.com/2011/12/08/intercompany-sales-processing-in-sap/
https://thefinanalyst.com/what-is-an-upstream-sale/#:~:text=The%20upstream%20sale%20is
%20when%20a%20subsidiary%20company,and%20profits%20or%20losses%20occurring
%20from%20the%20transaction.
https://thefinanalyst.com/what-is-a-downstream-sale/#:~:text=A%20downstream%20sale
%20is%20associated%20between%20related%20companies%2C,usually%20inventory%2C
%20by%20the%20parent%20to%20its%20subsidiary.
