1. The company can consolidate the financial statements after achieving control of the subsidiary. In this case, the long-term equity investment of the parent company and the paid-in capital of the subsidiary, and the accounts receivable and payable between the parent company and the subsidiary company shall offset correspondingly. The shareholdings of the subsidiary held by the minority shareholders will be listed as minority shareholders' equity in the consolidated balance sheet.
2, The cash system is the accounting basis in which using the actual receipt and payment as the standard to deal with economic operations, determine the current income and expenses, calculate the profit and loss of the current period. In other words, all cash receipts and payments are recorded as income and expenses during the period in which they are incurred, regardless of whether the economic activities associated with the cash receipts and payments actually occurred.
The accrual system is the principle to determine the current period of income and expenses by the occurrence of rights and responsibilities. That is, income is recognized by the occurrence of creditor's rights, and expenses are recognized by the occurrence of debts, instead of recognizing revenue and expenses with cash income and payments.
2. When an enterprise achieves control, joint control or significant influence on its subsidiary, and the fair value of the equity of the subsidiary cannot be reliably measured, the equity of the subsidiary company hold by the enterprise is regarded as the long-term equity investment. The proportion of shares held by enterprise in the subsidiary company is between 20% and 50%, which is accounted for by equity method. When the proportion of shares held by the enterprise in the subsidiary company is more than 50%, it is accounted for by cost method.
When accounting by cost method, the profits of the invested enterprise will not be dealt with in accounting. While distributing profits, the accounting entries are as follows: borrowing recorded as bank deposits, lending recorded as investment returns. When accounting with equity method, the profit of the invested enterprise will be recorded as follows: borrowing recorded as long-term investment and lending recorded as investment income.
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