Business Strategies

Business Strategies

Curiosity about Intercompany Transaction
Tonya McClain-Ali
ACC355 Advance Accounting
Colorado Technical University Online
May 10, 2010

The purchase of the twenty two companies must be recognized in the financial records of the entities of all the related parties. However, there will be a distinction in understanding the results in the elimination of certain account balances from the consolidated financial statements (Beams, Anthony, Clement & Lowensohn, 2009). All downstream transactions related to the purchase of the twenty-two companies will flow from Leeds to the subsidiaries and upstream transactions are categorized as business activities from the subsidiaries to Leeds.
The accounting department staffs members of all the entities will be required to work together along with their internal auditors to ensure transactions are recorded appropriately. The transactions must be recorded in each company’s book (Horgren, Harrison & Bamber, 2005).   However, there should not be any intercompany transactions in the consolidated financial statements (Beams et al., 2009).   An assurance service should be required to provide attestation services to prepare a consolidation worksheet to separate and make adjustments to the accounts of the parent and subsidiary companies (Whittington & Pany, 2010).
When Leeds Distribution, the parent company, obtains control of the additional companies, the assets and liabilities must be recorded at fair values (Beams et al., 2009). Generally accepted accounting principles (GAAP) usually are followed and mandated to handle daily transactions as well as the preparation of financial statements. Even though this is an acquisition, each company is still a separate legal entity and is responsible to maintain their accounting records.  
Intercompany transactions must be recorded in the normal GAAP fashion on the separate company’s books. However during the consolidation of the statements, sales become transfers and are eliminated so...