Consolidated Statement Definition
The consolidated statement, which is also called the “consolidated financial statement,” is the financial statement of a single company, a group of companies, or several divisions. The statement has useful information to look over if you want to know how a company or group of companies is doing financially.
Financial records are important papers that show how a business makes money. These reports help businesses keep track of their income and spending and plan for their future cash flow. A consolidated financial statement can help a company that has many divisions or subsidiaries keep track of all of its financial actions without having to look at thousands of different reports.
For the uninitiated, we will explain what consolidated financial statements are and how they vary from combined financial statements.
Here, we will discover:
Understanding Consolidated Statement Meaning
A combined financial statement is a financial report that shows how the money is being made by a business through its parent and subsidiary companies.
A “parent company” is typically a business that keeps an eye on another company and often has a part in the ownership of that company.
Say for instance, some food brands use different companies with the same name to make their goods stand out. Let’s say your business is called The Mega Soda Company. That name could be the “parent” of a few different soda brands that you own.
Difference Between Consolidated and Combined Statements
People often get consolidated and combined financial statements mixed up because they both show how much money a parent business and its subsidiaries made. But they show this information in a different way:
- Financial statements that are consolidated treat a parent business and its subsidiaries as if they were one.
- Combined financial statements, on the other hand, show information about a parent business and its subsidiaries separately, even though they are on the same statement.
- With consolidated financial statements, the parent company and any subsidiaries’ performance are not separated. Instead, they are shown as a single entity with a single financial position.
Why Use Consolidated Financial Statements?
A financial statement can help a business figure out what its costs are and how much money it’s making. It may also be useful for filing taxes. As an example, some businesses use consolidated financial accounts, which treat a parent company and its subsidiaries as one, to get tax breaks or lower tax rates because of financial activities or losses.
It’s also helpful for investors to have consolidated financial records. When buyers decide where to put their money, they want to know everything about the company. For this to happen, they need a consolidated financial statement that shows what the business and its companies are doing with their money. Usually, each company files its own financial statements. However, buyers may ask to see a consolidated financial statement to save time.
When to Use a Consolidated Financial Statement?
There are times when a parent company needs to use a combined financial statement and times when it doesn’t. Companies that are privately owned don’t have to report as much for tax purposes and government control, but public companies have to follow very strict rules when they report their income and other financial information.
That’s everything you must know about a consolidated statement.
FAQs
1. What is a consolidated statement in finance?
When a business has more than one division, its consolidated financial statements show its general financial health. This includes the parent company and all of its controlled subsidiaries. There are three main types of financial statements: income, cash flow, and financial situation.
2. Why do organizations prepare consolidated statements?
The consolidated financial records show how well the company is doing financially from a broad perspective. This is important information for finance reporters, shareholders, investors, lenders, and management teams.
3. What financial information is included in a consolidated statement?
A consolidated financial statement usually has a consolidated balance sheet, a consolidated statement of profit and loss, and notes, other statements, and information that helps explain things. If a parent company gives its own cash flow statement, the consolidated cash flow statement is shown.
4. How does the consolidation process work for financial statements?
When you consolidate, the assets, debts, and other financial items of two or more companies are put together into one. The word “consolidate” is often used in financial accounting to mean putting together a set of financial statements where all the subsidiaries report to the parent business.
5. When are consolidated statements usually produced?
Every year, companies decide whether to file consolidated financial accounts with their subsidiaries. They usually do this because it saves them money on taxes or in some other way.