The preparation of consolidated financial statements involves:
A) adding together the financial statements of the investor and the associate.
B) adjusting entries in the accounting records of the subsidiary.
C) adding together the financial statements of the parent and the subsidiaries.
D) adjusting entries in the accounting records of the parent.

Question

Quizplus · Accepted Answer

Consolidated financial statements involve adding together the financial statements of the parent company and its subsidiary companies. This includes adjusting entries in the accounting records of the subsidiaries to ensure consistency with the parent company's accounting policies. The financial statements of any associates (companies in which the parent has significant influence but not control) are not added, but instead are accounted for using the equity method. Adding together the financial statements of the investor and the associate (option A) is not part of the process of preparing consolidated financial statements. Adjusting entries in the accounting records of the parent (option D) may be necessary, but this is only part of the process and not the entirety of it.

The Preparation of Consolidated Financial Statements Involves