It’s good for business when employees work together towards a common mission of business success and profitability. Business owners also come to appreciate when marketable bookkeeping alliances foster transparency, compliance, and accountability in the financial statements of their company.
A company must print four financial data summaries at the end of a given period, such as a month, quarter, or economic year. These comprise a statement of finances, a declaration of profit and loss, a report of cash flows, and a statement of changes in equity. If you review a company’s financial statements year after year, you can see whether the business has compensated for its operating mistakes and moved forward from a profitability standpoint. A quick way to gauge that is going through its P&L and note profit trends over the years.
Consolidating accounting statements means adding up performance report data for two or more productions, depending on equity stakes and applicable guidelines. Think of it as totaling each financial item and ensuring the final bookkeeping result corresponds to the underlying percentage. When a company owns less than 20 percent of another entity’s equity, it uses the cost method under which the investment value doesn’t fluctuate, unless the affiliate files for bankruptcy or copes with insolvency. If the investment business has a stake ranging from 20 to 50 percent, it uses the equity method.
Consolidated Accounting Statements
These declarations are useful for appraising the financial position and results of an entire group of commonly owned businesses. Otherwise, reviewing the results of individual businesses in the group does not indicate the financial bookkeeping health of the group as a whole.
The key entities used in the construction of consolidated statements are:
- A parent entity and all of its divisions.
- A subsidiary entity that is controlled by a parent company.
Therefore, consolidated financial statements are the collective financial for a parent company and its subsidiaries. It is also possible to have consolidated financial statements for a portion of a group of companies, such as for a subsidiary and those other entities owned by the subsidiary.
These statements require substantial effort to construct since they must exclude the impact of any transactions between the entities being reported on. So, if there is a sale of goods between the subsidiaries of a parent company, this inter-company sale must be eliminated from the consolidated financial statements. Another common inter-company elimination is when the parent company pays interest income to the subsidiaries whose cash it is using to make investments; this interest income must be eliminated from the consolidated financial statements.
Consolidated Accounting Statements with QuickBooks
If your business has numerous divisions or wholly-owned subsidiaries, consolidating accounting statements from all of them gives you a complete picture of the parent company’s financial health. You can use QuickBooks to merge statements, but it involves careful bookkeeping. Under some conditions, you’ll need the use of third-party software to import the financial data into QuickBooks.
QuickBooks lets you categorize transactions by class, giving the user great flexibility in how to define class. If your business has several divisions but is still a single legal entity, elect a class to report profit and loss by division. Be certain to identify each operation by its class, however, to keep the reports accurate. Beginning with QuickBooks, you can produce a new balance sheet report by class, displaying assets, equity and liability, and a consolidated balance sheet for the company.
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