Consolidating two balance sheets
Part of the subsidiary belongs to someone else, and that must be reflected on the balance sheet. This worksheet is usually presented as a chart, and it has columns for the parent company, each subsidiary, amounts to eliminate in both debits or credits and a total.
How to Prepare a Consolidated Balance Sheet Consolidated balance sheets must be prepared according to the same rules and accounting methods used across the parent company and its subsidiaries. Income statement amounts intercompany revenue and costs can be a bit more complicated. Cite this Article A tool to create a citation to reference this article Cite this Article. When you own a subsidiary in its entirety, it is fairly straightforward to submit a consolidated balance sheet. Next, you will need two columns for assets and liabilities that can be eliminated due to duplication.
This is especially true since the information contained within might overlap between the two entities and thus need to be eliminated to avoid duplication. Monetary values are not shown, summary subtotal rows are missing as well. To create the worksheet, you will need the financials of the parent company and its subsidiary to be initially separate. You could allow it to continue operating autonomously, you could completely absorb it into your company or you could choose an option somewhere in between. It will help if you set your financial system up to segregate and group intercompany balances.
You treat your company and any subsidiaries as a single enterprise. These eliminated figures are listed in the assets or liabilities for both the company and the subsidiary. Investors also typically need to have access to this information to determine the value of their participation in your business. Consolidated Statement of Income The consolidated financial statements only report income and expense activity from outside of the economic entity. To consolidate management fees, debit company B's management fee income and credit company A's management fee expense.
You should have one column for each unit of the company. You can use it to generate on demand any conceivable financial statement, as well as any account detail and transaction report. Advantages of a Consolidated Balance Sheet A consolidated balance sheet has many advantages, not the least of which is ease of use.
All subsidiary equity accounts, such as common stock or retained earnings, must be eliminated. Also, depending on the ownership arrangement of the subsidiary, the nature of the consolidated balance sheet may differ. Then, set up two worksheets to combine data from the first four.
Records of the values of each account in the balance sheet are maintained using a system of accounting known as double-entry bookkeeping. In this instance, the assets and liabilities of the subsidiary are included.
For instance, if some employees work part-time for the parent company and part-time for its related subsidiary, showing the payroll liability on a consolidated balance sheet is essential. Typically, to create a consolidated balance sheet, you will need to start with a worksheet. In the case where a company does not own percent of its subsidiary, this must be reflected on the consolidated balance sheet accordingly. Only companies that are owned are included in the consolidated financial statements.
It may be helpful when preparing a consolidated balance sheet, to start with a worksheet. You may use footnotes or other asides to explain anything that would be confusing to someone who might later look at the consolidated balance sheet. It does not show all possible kinds of assets, liabilities and equity, but it shows the most usual ones. The debits and credits you eliminate will need to balance out to zero.
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