Accounting Consolidation Process Explained

Consolidation in financial accounting is a technique that summarizes a group of companies' financial statements into one. This offers the benefit of viewing the whole group's financial information together to see how all companies are doing combined.

Uses

Accounting consolidation occurs when a parent company owns other companies, or subsidiaries. It is also used when a corporation owns 50 percent or more of another company.

Purpose

Consolidation is a standard accounting process used when more than one company is owned by the same corporation. Consolidated financial statements are designed to combine all companies' financial statements into one. Each individual company is then compared to the consolidated statements. This allows stakeholders to know how well each individual company is performing compared to all companies as a whole.

Process

The technique of consolidating accounting records is handled by combining the income statements, balance sheets, owner's equity statements and cash flow statements from all companies to create four combined financial statements. The statements must cover the same time periods for the consolidation to be accurate.

References

• Online Accounting: Balance Sheet Consolidation Example
• New York Fed: Understanding Financial Consolidation