Consolidating financial statements eliminating entries

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.

In the outside world, the only revenue that counts is revenue coming from a real customer.

Generally companies start using Excel when their outside accountants stop doing consolidations for them, and consolidation remains an occasional chore rather than a key part of the financial close. The General Ledger Any General Ledger that can support a mid-sized company will have the ability to create multiple legal entities.S., the Mexican government is going to want to know why. To figure that out, it’s not enough to eliminate entries, you also need to allocate costs. Which divisions should assume which portion of the costs? Partial Ownership and Joint Ventures So far in our examples, we’ve pretended that all our companies are owned fully by the same entity. How do you consolidate with partial ownership or complex joint ventures? If you’ve been following our blog for awhile, you probably know we believe in implementing the simplest solution possible to get the job done. We’ve identified four different ways to solve consolidation challenges. Outside Accountants For mid-sized companies with two or three entities, the most common approach is to let outside accountants deal with it.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.Consolidation is a basic accounting concept that’s simple in theory, but complex in the real world.In this post, we’ll cover the basics of consolidation, some of the challenges that emerge and possible solutions.

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