Consolidating financial statements eliminating entries

Focusing on the income statement, let’s say (for absolute simplicity) that ACME sells 1000 widgets at a price of .00 each and a cost of .00 each. This creates more complexity because the manufacturing entity must “sell” widgets to the new retail entity.

Its income statement would look like this: Everyone’s happy. Let’s assume ACME sells 1000 widgets to its wholesale customers and another 500 widgets through its retail channel.

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.

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.

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Database driven ledgers are preferable to spreadsheets because they are far better at ensuring data consistency.

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.

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.

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