Intercompany accounting is the process by which firms reconcile a company's transactions to eliminate duplication among different departments that may result in overstating assets, according to Oracle. Companies must adjust accounting practices for intercompany transactions or face legal consequences.Know More
Intercompany accounting must be used among separate legal entities of a parent company that are the same corporate enterprise, or among departments of one company that have access to the same transactions. Departments may include a warehouse, retail outlet and manufacturing plant. Most companies use specific accounts to consolidate intercompany transactions, notes Oracle. Each account should be identified as one used by more than one segment of the firm, and each account should be one that balances the company's books properly.
The point of intercompany accounting is to avoid counting the same transaction twice, once with a subsidiary and once with the parent company. An accounting system must be able to identify and segregate individual transactions from overall balance sheets that are made during period reporting, according to Acumatica. The key is to have an integrated accounting system that recognizes duplicate transactions through computer programs. Transactions such as inventory, cash, and receivable and payable balances should be updated automatically to see an accurate portrayal of a company's status. Supply chains, new products, expanding manufacturing and growing customer bases can complicate intercompany accounting as a firm grows.Learn more about Accounting
Throughput accounting is an offshoot of variable cost accounting that treats direct material costs as the only variable cost, while all other costs are assumed to be fixed, explains Richard J. Lukesh of Turnaround.org. The accounting approach was developed by Eliyahu Goldratt as part of the Theory of Constraints paradigm.Full Answer >
Accounting is important because it provides an objective picture of a business' financial success. In addition, accurate bookkeeping and accounting is extremely vital for tax and legal purposes. Many companies are required to have particular accounting procedures in order to comply with legal code.Full Answer >
People need accounting because it keeps a record of cashflow, produces financial reports and monitors business expenses of an organization, according to the Houston Chronicle. Accounting helps owners make vital decisions to help their companies thrive.Full Answer >
The order of liquidity plays a part in the balance sheet by determining which assets are listed first. This order determines which are more useful on an immediate basis.Full Answer >