Accounting consolidating statements
Let’s also assume that the manufacturer charges the retail division the same price it charges outside customers.
The retailer then charges its customer .00 per widget for a total of 00.
In the outside world, the only revenue that counts is revenue coming from a real customer.
That’s what consolidation is all about – putting together financial statements that eliminate all the internal back and forth and focus only on “real” customer revenue.
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.
Even if all your companies don’t use the same GL system, you can still make it work by writing an interface between ledgers.
Every government in the world wants to collect more tax. Companies go through consolidation because outsiders don’t care about all your inter-company back and forth.
We now we have two income statements, one for manufacturing and one for wholesale: Now it’s time to consolidate the income statements.
If we add all revenue together, we’d have a total of ,000. We only sold 1500 widgets and the total price out the door was 00.
Manufacturing charged the retail division .00 per widget. And while auditors who follow strict rules of independence shouldn’t be doing your consolidation for you, smaller accounting firms generally handle such things in the normal course of business. Excel When all else fails, use Excel – the accountant’s Swiss Army knife. If you only have a few entities and don’t have to consolidate statements very often, then Excel is fine.
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.
We often use this ability to get elimination entries into systems and out of spreadsheets.