Preparation of consolidated financial statements when a parent-subsidiary relationship exists is an example of
A) the economic entity assumption.
B) the matching principle.
C) comparability.
D) reliability.

Question

Quizplus · Accepted Answer

The preparation of consolidated financial statements is based on the economic entity assumption, which assumes that the parent and its subsidiaries are one single economic entity. This allows the financial statements of all entities to be combined and presented as one set of financial statements. The matching principle, comparability, and reliability are important accounting concepts but do not apply specifically to the preparation of consolidated financial statements in a parent-subsidiary relationship.

Preparation of Consolidated Financial Statements When a Parent-Subsidiary Relationship Exists