Comparability/Consistency

Financial statements of one accounting period must be comparable to another in order for the users to derive meaningful conclusions about the trends in an entity's financial performance and position over time. Comparability of financial statements over different accounting periods can be ensured by the application of similar accountancy policies over a period of time.

A change in the accounting policies of an entity may be required in order to improve the reliability and relevance of financial statements. A change in the accounting policy may also be imposed by changes in accountancy standards. In these circumstances, the nature and circumstances leading to the change must be disclosed in the financial statements.

Financial statements of one entity must also be consistent with other entities within the same line of business. This should aid users in analyzing the performance and position of one company relative to the industry standards. It is therefore necessary for entities to adopt accounting policies that best reflect the existing industry practice.

Example

If a company that retails leather jackets valued its inventory on the basis of FIFO method in the past, it must continue to do so in the future to preserve consistency in the reported inventory balance. A switch from FIFO to LIFO basis of inventory valuation may cause a shift in the value of inventory between the accounting periods largely due to seasonal fluctuations in price.

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Intercompany Eliminations with Journal Entries

Intercompany Eliminations Explained intercompany eliminations happen for business combinations. The whole thing kind of confuses me. Can you explain the process and the journal entries to record the intercompany eliminations? Answer: 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. So, let’s assume Company A owns Company B and A sells $120,000 of inventory to B. Let’s also assume that Company A gets a 40% margin on all sales and Company B has 30% of the inventory remaining at the end of the year. With this set of facts, they could ask you a wide variety of questions on the CPA exam. One of the tricks to solving problems involving intercompany eliminations is to understand the entries that A and B would book in these cases. One of the other tricks is understanding the relationship between cost and margin percentage.

Procure to Pay (P2P) Process Folow with Journal Entries

Procure to Pay process flow. 1. Requester: Request for goods & the same goes for an approval 2. PR is created & routed for approval 3. Once approved, PO is created. 4. Sourcing activities like, Choosing the right Vendor, Payment info happens meanwhile, 5. PO is routed for approval 6. PO is sent to the supplier.& Vendor signs the agreement (Payment terms) 7. Supplier will send the goods along with Invoice.(PO Number mentioned) 8. Good received & GRN entry is made. 9. Invoice is sent to the AP team 10. AP team process the Invoice (3 way match) - GL coding will be automatically pulled. 11. process for Payment Few Journal Entries examples are as followed. 1. Goods Received Ware House Dr Inventory a/c Cr GRNI a/c 2. Inv. Register in our system Dr RI a/c Cr Trade a/c 3. Receipts Matched/Approved Dr GRNI a/c Cr RI a/c 4. Inv. Pa

End to End Journal Entries for Purchase Orders

Creating end-to-end journal entries for purchase orders involves recording the financial transactions associated with the entire procurement process. Here's a step-by-step breakdown of journal entries related to the purchase order process: 1. Request for Purchase: When a department identifies the need for goods or services and generates a Request for Purchase (RFP) or Purchase Requisition, no financial transactions are recorded at this stage. 2. Vendor Selection and Quotation Comparison: No financial transactions are recorded during the vendor selection or quotation comparison stage. 3. Purchase Order Creation: Once the Purchase Order is created and approved internally, the following journal entry is made: Copy code Debit: Purchase Order Liability Credit: Accounts Payable This entry recognizes the commitment to pay the vendor for the goods or services ordered. 4. Sending the Purchase Order: When the approved Purchase Order is sent to the vendor, there is no financial transacti

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