Consolidating financial statements eliminating entries

Benefits of Consolidated Financial Reports Consolidated financial reports are a GAAP requirement for good reason.

Some of the many benefits of consolidated financial reports include: Complete Overview – Consolidated statements allow investors, financial analysts, business owners and other interested parties to get a complete overview of the parent company.

Consolidated financial statements combine the financial statements of separate legal entities controlled by a parent company into one set of financial statements for the entire group of companies.

Simplification – Consolidation software cuts out all transactions that occur between subsidiaries and the parent company since, in the grand scheme of the business, these things cancel each other out.

For example, if a parent company purchases goods or services from a subsidiary, the parent company’s purchase and the subsidiary’s sale are both eliminated so this transaction doesn’t distort the final figures.

It can be quite tedious to do this manually but consolidated software simplifies the preparation of the final reports.

Each subsidiary must prepare its own financial statements including balance sheet, income statement, statement of cash flows and statement of retained earnings.

This information for each subsidiary is then combined using consolidation software to create consolidated financial reports that represent the financial position of the parent company.