How to consolidate financial statements

How to consolidate financial statements? To a large extent, it is all one big summation. Combine like items of assets, liabilities, equity, income, expenses and cash flows of the parent with those of its subsidiaries. In addition, there may be the need to record eliminations.

There may be intercompany sales between entities within the group. As a result, the intercompany sales account will have a credit balance, cost of goods sold a debit balance, and inventory a debit balance, as indicated by the letter B. In order to eliminate the intercompany sales, record the opposite entry as indicated by the letter X: debit intercompany sales, credit cost of goods sold, credit inventory.

A similar approach with eliminations of intercompany due to / due from balances. The letter X indicates the elimination entry.

And another example: intercompany ownership balances between parent company and subsidiary.

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