There should be a Destination Subsidiary and Source Subsidiary in this process. Destination subsidiary is the one which buys inventory from other subsidiary. Source subsidiary is the one which sells inventory to other subsidiary.
Destination subsidiary should create an purchase order and generate a vendor bill for this transaction. Source subsidiary should create an sales order and generate a sales invoice. Manually create a customer and seller for the Intercompany transactions. An entity record can act as an agent for only one subsidiary. These transactions are also called Arm’s Length transaction which means transactions that are conducted between parties who are acting independently from one another and are not associated with one another outside of the transaction.
At period end, run the Intercompany elimination process to automatically revalue inventory costing balances, because Intercompany transactions are neither considered as an sales nor purchase.