Entity A raises the invoice. Somebody keys the matching bill into Entity B. At month end, somebody finds them both again.

Multi-entity accounting is the practice of keeping separate, complete books for each legal entity in a group while still being able to report on the group as a whole. Each entity has its own chart of accounts, its own tax registration and its own statutory filing obligations, so its ledger has to stand alone and survive an audit on its own terms, it is not a department of something larger, it is a company. The group view is then built on top of those books: transactions between the entities are identified, balances are translated into one currency where they differ, and the whole is combined in a way that does not double-count anything. The difficulty is rarely the individual books, which are ordinary accounting. It is the join, which is a second body of work that most systems record the result of and track nothing about the state of.

An intercompany transaction is one where both sides are entities under the same ownership, one subsidiary sells to another, lends to another, charges another a management fee, or allocates a shared cost across several. Each side records it normally and independently: the seller books revenue and a receivable, the buyer books a cost and a payable. Both entries are correct, and each entity's accounts are right as they stand. At group level, though, the pair describes money that never left the group, which is why intercompany transactions have to be identifiable before group statements mean anything. The practical difficulty is that identification usually depends on a convention rather than a mechanism, a naming rule, a dedicated account, a reference someone remembered to fill in, and conventions degrade at exactly the moment volume makes them matter.

Intercompany elimination is the step that removes transactions between group entities from the consolidated statements, so that revenue the group billed itself is not counted as revenue, and a balance one entity owes another is not counted as both an asset and a liability of the same group. Without it, three entities that trade with each other report combined revenue larger than anything a customer ever paid. Eliminations do not change any entity's own books and must not: the subsidiary's statutory accounts are still correct with the transaction in them. The elimination entries exist only in the consolidation layer, which is a separate object sitting above the entity ledgers, and that is precisely why elimination is usually the last part of a close to be automated and the first part to be done in a spreadsheet. It is the one step that belongs to no single entity's ledger.

Consolidated financial statements report a parent and the entities it controls as a single economic unit, with intercompany transactions eliminated and any non-controlling interest presented separately. Combined financial statements report entities that share common ownership but where no parent-subsidiary control relationship exists, sister companies under one individual owner, or a set of affiliates held in parallel rather than in a chain. The practical test is control rather than ownership percentage: if one entity directs the financial and operating policies of another, the relationship is consolidation, and a majority shareholding is evidence of that rather than the definition of it. Combined statements still eliminate transactions between the entities they cover, so the elimination work is the same in both cases; what differs is which entities are inside the boundary and whether a parent exists to be the reporting entity.