Hello! We currently use non arm’s length intercompany transfer orders. The flow is transfer order, then item fulfillment, then item receipt. Because of how the item receipt posts to the general ledger, the intercompany clearing account has built up a balance. The item fulfillment posts a credit to the inventory asset account and a debit to the inventory in transit account. That part behaves as expected. The item receipt is the problem. For the fulfilling subsidiary, the item receipt posts a credit to inventory in transit and a debit to the intercompany clearing account. For the receiving subsidiary, the item receipt posts a debit to inventory asset and a credit to the intercompany clearing account. The two intercompany clearing entries created by the receipt are not equal to each other. Since the clearing account is debited and credited by different amounts on each receipt, it does not net to zero. Over time, those differences accumulate and leave a balance in the intercompany clearing account. Why do the amounts posted to the intercompany clearing account on the item receipt not match?

This is almost always a valuation mismatch. In non arm’s length transfers, the fulfilling sub usually relieves at its own cost, while the receiving sub may be booking the receipt using a transfer price, a different cost method, or a different FX rate. When those bases differ, the two clearing amounts will not mirror each other, so the balance builds over time. Check your intercompany transfer pricing setup and whether cost method or currency differs between subs.

Thank you @christianRILECPQ! Items are average cost in both subs and use item cost as transfer cost is marked on the TO. I'm thinking it is FX rate

we transfer items from plant 1 to plant 2 all day long and we had the same issue. We just use inventory transfer instead. But to be able to keep track we may start using what you are stating above