Saturday, February 9, 2013

Investments in International Operations


Many entities from small entrepreneurs to large corporations conduct business internationally. Some entities’ operations occur in so many different countries that the companies are called multinationals Company that operates in several countries.. Many of us think of Coca-Cola and McDonald’s, for example, as primarily U.S. companies, but most of their sales occur outside the United States. Exhibit 15A.1 shows the percent of international sales and income for selected U.S. companies. Managing and accounting for multinationals present challenges. This section describes some of these challenges and how to account for and report these activities.

EXHIBIT 15A.1International Sales and Income as a Percent of Their Totals

Point: Transactions listed or stated in a foreign currency are said to be denominated in that currency.

Two major accounting challenges that arise when companies have international operations relate to transactions that involve more than one currency. The first is to account for sales and purchases listed in a foreign currency. The second is to prepare consolidated financial statements with international subsidiaries. For ease in this discussion, we use companies with a U.S. base of operations and assume the need to prepare financial statements in U.S. dollars. This means the reporting currency of these companies is the U.S. dollar.

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