A category of intercompany transactions that occurs when a subsidiary sells (or transfers economic resources) to its parent company. In this type of transaction, the subsidiary is the initiator of the transactions or transfers and as a result would be responsible for record-keeping and documenting any profit or loss that may arise from the same. Not only is the transaction details visible to minority and majority interest stakeholders, but these stakeholders can also have a share in the profit or loss due to their respective ownership of the subsidiary.

For example, upstream transactions involve goods or services flowing from a lower-tier entity to a higher-tier one within a corporate group, such as a manufacturing subsidiary selling products to the parent company. A subsidiary may provide certain management, administrative, or support services to its parent.

Inventory sales in upstream transactions (from subsidiary to parent) appear in consolidated income statements after elimination of intercompany revenue and cost of sales arising from the transaction. In the consolidated balance sheet, intercompany payable and receivable are eliminated, as well as profits and losses against non-controlling and controlling interest proportionally.

Throughout the process of accounting for intercompany transactions, all transactions are tracked, recorded, and reconciled to avoid double entries in more than one of the company’s subsidiaries or divisions. Such information allows the company to evaluate the full monetary value of all its transactions and come up with accurate financial statements. Intercompany accounting allows companies to assess all liabilities that it may incur on account of the relationship with its subsidiaries, and to comply with tax codes within different jurisdictions where its subsidiaries operate.