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.

Philip de Vroe (The Finance Storyteller) aims to make accounting, finance and investing enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better investing decisions. Philip delivers #financetraining in various formats: YouTube videos, livestreams, classroom sessions, and webinars. Connect with me through Linked In!

Want to get access to bonus content, and/or express your gratitude by buying me a cup of tea? Join my channel as a member through https://www.youtube.com/channel/UCQQJnyU8fALcOqqpyyIN4sg/join