👉 Subsidiaries are companies owned by another company, often referred to as the parent company. Mathematically, a subsidiary can be understood through its financial relationships and accounting practices. The parent company records the subsidiary's financial transactions in its own ledger, while the subsidiary maintains its own accounts. This dual accounting system ensures transparency and accuracy in financial reporting. For instance, the parent company would record dividends paid to the subsidiary as a reduction in the subsidiary's equity, and vice versa, when distributing profits. This relationship is often formalized through a subsidiary agreement that outlines ownership percentages, management responsibilities, and financial reporting requirements. The net income of the subsidiary is typically allocated to the parent company according to the agreed-upon ownership percentage, affecting the parent's overall financial statements.
