If the parent company owns nine subsidiaries, there are 40 separate standalone financial reports to view i.e.the four basic financial statements for each subsidiary plus the parent company.For example, if a parent company purchases goods or services from a subsidiary, the parent company’s purchase and the subsidiary’s sale are both eliminated so this transaction doesn’t distort the final figures.It can be quite tedious to do this manually but consolidated software simplifies the preparation of the final reports.Benefits of Consolidated Financial Reports Consolidated financial reports are a GAAP requirement for good reason.
The smaller companies can help the profitability of the parent company while also continuing to operate as separate entities.
Not only would it be hard to track down all these records, it would be extremely difficult to look over each of them and try to get an overall view of how the business is performing.
Consolidated financial statements cut this pile of reports down to just four consolidated reports.
Eliminating these transactions gives a simplified view of business performance.
Updates to Consolidated Financial Statements – Over time, consolidated financial statements will continue to evolve to make the process of evaluating a parent company even more transparent.
You should actually acknowledge that the transferred items merely switched premises and not ownership.