Accounting consolidating statements
Often, business leaders look only at their individual statements to go about their business.At the end of the day, consolidation is really about addition – adding in balancing entries. Here are some of the complexities we see regularly: 1.Consolidation is a basic accounting concept that’s simple in theory, but complex in the real world.
In these situations, you often need to maintain two sets of books – one for tax and one for management. Currency Issues Currency issues (the subject of an upcoming post in this series) are complex even when you aren’t consolidating. If manufacturing sells to retail, what currency do you use for that transaction? Let’s demonstrate with our earlier example: We assumed a .00 cost per widget. When a company has to answer to its bank and a few owners, a consolidated statement is generally not all that important – it’s something they have to produce once a year at most.
In the context of financial accounting, consolidation is the aggregation of the financial statements of two or more companies under the same ownership into a consolidated financial statement.
To really grasp consolidation, you need to understand that in the outside world, no one cares about money that’s traded back and forth between different companies under the same ownership.
In the outside world, the only revenue that counts is revenue coming from a real customer.
That’s what consolidation is all about – putting together financial statements that eliminate all the internal back and forth and focus only on “real” customer revenue.