The parent and subsidiary relationship that is established in consolidation accounting is an example of the entity concept.

Question

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The entity concept recognizes the parent and subsidiary as separate legal entities, but for consolidation accounting purposes, they are treated as a single economic entity. The consolidation accounting process combines the financial statements of the parent and its subsidiaries to provide a consolidated financial statement that reflects the financial position and performance of the entire group. Therefore, the parent-subordinate relationship is an example of the entity concept.

The Parent and Subsidiary Relationship That Is Established in Consolidation