A consolidated financial statement is a comprehensive financial report that presents the financial position, performance, and cash flows of a group of companies as if they were a single entity. In other words, it combines the financial statements of all the companies in the group into a single set of statements.

Consolidated financial statements are typically used by large, multi-national corporations that have multiple subsidiaries operating in different countries and industries. These statements provide a more accurate representation of the overall financial health of the group and allow stakeholders, such as investors and creditors, to understand the financial performance and risks of the entire organization.

There are several steps involved in preparing consolidated financial statements:

Identify the parent company: The parent company is the company that controls the other companies in the group. It is responsible for preparing the consolidated financial statements and includes its own financial statements in the report.

Identify the subsidiaries: Subsidiaries are companies that are controlled by the parent company. They may be fully owned by the parent company or have a minority ownership stake.

Eliminate intercompany transactions and balances: Intercompany transactions and balances occur when one company in the group does business with another company in the group. These transactions and balances must be eliminated in the consolidated financial statements to avoid double counting.

Prepare the consolidated financial statements: Once the intercompany transactions and balances have been eliminated, the parent company can prepare the consolidated financial statements by combining the financial statements of the parent company and its subsidiaries.

An example of a consolidated financial statement is the balance sheet, which presents a snapshot of the group’s assets, liabilities, and equity at a specific point in time. The assets of the group will include the assets of the parent company and its subsidiaries, and the liabilities and equity will also be consolidated.

For example, if the parent company has $100,000 in assets and $50,000 in liabilities, and its subsidiary has $50,000 in assets and $30,000 in liabilities, the consolidated balance sheet would show total assets of $150,000 and total liabilities of $80,000.

Consolidated financial statements provide a more comprehensive view of a group’s financial position and performance, but they can also be more complex to prepare and understand. It is important for stakeholders to carefully review and understand the consolidated financial statements to get a full picture of the group’s financial health.