Question

You are the controller for a moderate-sized company. Several new board members have requested that you...

You are the controller for a moderate-sized company.
Several new board members have requested that you
make a presentation on how consolidated financial
statements are prepared. One board member asked why
worksheet eliminations are needed for all intercompany
transactions. How will you respond to this question?

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Answer #1

Response:

Intercompany elimination refers to the process for removal of transactions between companies included in a group in the preparation of consolidated accounts. The process of intercompany elimination is helpful in managing eliminations of operations among companies within a single group.Intercompany elimination entries, therefore, occur in the event of a merger, or when one company absorbs another company. During these processes, it is highly essential to clean up and consolidate the financial accounts and relationships between the two for the sake of legality as well as efficiency.For this reason worksheet eliminations are required for all intercompany transactions.

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