Consolidating company accounts


The individual financial statements show all transactions regardless of the source of the funds.Subsidiary holdings must be shown as a stock asset on the parent company's financial statements and shareholders' equity on the subsidiary's financial statements.Standalone financial statements are not required for companies owned 100 percent by the parent but may be used for internal management purposes.A consolidated financial statement combines the information from the subsidiary companies' individual financials.

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The type of method depends on how much of the second company the first company owns.These two methods do not lead to consolidating the financial statements.Once the company owns 50 percent of another company, then the company uses the acquisition method and must consolidate the financial statements.There are five important rules an accountant must follow when consolidating.First, the accounting must eliminate all of the subsidiary's shareholders equity accounts, such as common stock and retained earnings.Upon consolidation, the original organizations cease to exist and are supplanted by a new entity.

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