Definition: A pair of consolidated financial statements consists of accounts which reveal the operations, cash flows, and financial standing of a parent company and all subsidiaries. To put it differently, it’s a record that unites all of the actions of aparent business and its subsidiaries on a single report.
What Does Consolidated Financial Statements Mean?
You can imagine it such as a merger which unites all of the subsidiaries with the parent business to create one bigger entity that issues one group of financial statements.
This procedure is accomplished using theequity procedure for accountingwhere the parent provider reports the earnings and company activities of their subsidiaries in its accounts. Since the organizations will be united onto the financials, no investment balances are necessary, as this could double count the subsidiaries from the accounts. This may sound somewhat complex at before all else, therefore I’ll split it down into steps.
In order to unite the businesses ‘financial statementstogether, we must before all else obtain rid of any accounts that would be double counted. For instance, the parent company maintains an investment account that records the amount of money invested in each subsidiary. This account is no longer needed on a set of consolidated financial statements because we are treating all of the companies as if they were the one company.
So before all else, the investment accounts must be disregarded. Second, the individual stocks and liabilities of the parent and subsidiaries are combined to make a single balance sheet. Third, the revenue and expenses are combined to make a single income statement. Fourth, cash flow activities are also combined for all entities to form a single statement of cash flows.
As you can see, it’s almost like we combined all the entities into one and disregarded any existing intercompany accounts that were on the books of the individual companies.
External userscan use this report to see the profitability and growth of the company as a whole including all of the subsidiaries.