Consolidation

Combining the financial statements of a parent and its subsidiaries into one set, with transactions between them removed.

DefinitionCombining the financial statements of a parent and its subsidiaries into one set, with transactions between them removed.

Consolidation produces the financial statements of a group as if it were a single company. The parent's and each subsidiary's ledgers are added together, balances are translated into the reporting currency, and intercompany sales, purchases, receivables, payables and loans are eliminated so the group does not report business it did with itself.

How it is computed

Consolidated figure = sum of each entity's figure, translated to the reporting currency, minus intercompany eliminations. Under US GAAP, noncontrolling interests in a subsidiary not wholly owned are shown separately.

Example

The parent records revenue of $8,000,000 and its subsidiary $2,500,000, of which $600,000 is sales to the parent. Consolidated revenue is $8,000,000 + $2,500,000 - $600,000 = $9,900,000.

Where it goes wrong

Intercompany balances that do not match on both sides, entities closing on different dates, and exchange rates applied inconsistently. How reporting software handles it is covered in financial reporting software.

Articles that use this term

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Ten questions a wealth firm CEO asks, and the table that answers each

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