Accounting and consolidating entry
We also need to eliminate some or all of the cost of sales.How much of the cost of sales depends on the profit amount and the amount of inventory remaining at the end of the year.Question: Rob, I don’t really understand how intercompany eliminations happen for business combinations. Can you explain the process and the journal entries to record the intercompany eliminations?Remember that in a business combination, we are trying to eliminate any transactions between the parent and the subsidiary so that we only have transactions with 3rd parties left after our consolidating entries.Alternatively, we can calculate the appropriate amount in ending inventory.We know the original cost was 0,000 and 30% remains in Company B’s ending inventory.In consolidated accounting, the information from a parent company and its subsidiaries is treated as though it comes from a single entity.The cumulative assets from the business, as well as any revenue or expenses, are recorded on the balance sheet of the parent company.
Consolidation involves taking multiple accounts or businesses and combining the information into a single point.There are a couple ways to figure out the adjustment to cost of sales and inventory.First, remember that when we record an elimination on intercompany sales, the Intercompany Sales account is always debited for the full sales amount. No calculation is required – just take the full amount.This means we should end the year with ,000 in ending inventory.But, we have ,000 in ending inventory (0,000 cost to Company B minus 0,000 relieved from inventory for sales).