Consolidating financial statements eliminating entries

A few additional things to note: We recommend keeping separate accounts for intercompany and external company transactions. Too often, intercompany and external transactions are mixed together, either because systems are inadequate or not set up appropriately. And in many companies, even mid-size ones, no one pays much attention to them.

Often, outside accountants create the consolidated financial statement and only the CFO Controller and/or the bank looks at it.

If your manufacturing plant in Mexico charges too little to the U. While simple eliminations can create a consolidated view, they don’t help you determine how much money each division really made.

Let’s also assume that the manufacturer charges the retail division the same price it charges outside customers.

The retailer then charges its customer .00 per widget for a total of 00.

So, we set up an additional “elimination statement” either through Excel, by creating a dummy company in the accounting system, or with special consolidation software.

Our numbers now look something like this: Thus far we’ve dealt only with the income statement, but the same logic applies to balance sheets.

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Often, when people “upgrade” from Excel to a real system, they discover that what they thought was working, wasn’t. Setting Up Intercompany Costs In our example, widgets were sold at the same price to outside wholesalers and the company-owned retailer. There are all kinds of reasons management may want different intercompany prices.

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