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Posted by / 02-Aug-2020 22:24

Consolidating financial statements eliminating entries

So, we set up an additional “elimination statement” either through Excel, by creating a dummy company in the accounting system, or with special consolidation software.

Our numbers now look something like this: Thus far we’ve dealt only with the income statement, but the same logic applies to balance sheets.

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.

Often, outside accountants create the consolidated financial statement and only the CFO Controller and/or the bank looks at it.

Let’s explain how this works with an example of a growing company.

ACME makes and sells widgets to wholesalers around the country. And these retail stores are set up as a different legal entity.

As companies grow, structures get complex, and multiple levels of consolidation must occur.

While some people stick with an Excel solution as long as possible, it just isn’t trustworthy.

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