How to prepare consolidated income statements and balance sheets

A consolidated income statement and balance sheet is prepared when a parent company partly or fully owns one or more subsidiary business entities. In the UK the income statement may be called the profit and loss account or the income and expenditure account. The purpose of consolidation is to present a true and fair view of the financial situation of the business group as a whole. The consolidated financial statements represent the result of the group's external trading and investments; inter-group transactions are offset and eliminated.

Consolidated balance sheet

Prepare financial statements for the parent company at the end of the accounting period. Produce financial statements for each of the subsidiary businesses, ending on the same date as the parent company's accounts.

Open a spreadsheet to consolidate the balance sheets. Type the name of each asset and liability on separate rows in column A.

Enter the balance sheet figures of the parent company in columns B and C, using column B for assets and column C for liabilities. Total each column to ensure they agree before continuing.

Enter the balance sheet figures for each subsidiary entity in columns D onwards, using two columns per subsidiary. Put the assets in the first column of the pair and the liabilities in the second column. Total each pair of columns to check they agree.

Prepare two columns for inter-company accounts. Transfer transactions between any of the entities in the group to these columns, to offset and eliminate them.

Use two columns on the right of the spreadsheet for the consolidated figures. Add the assets and liabilities separately for each row, placing the total in the appropriate consolidated column. Ignore inter-group transactions. When all the entries have been added, total each consolidated column and check they agree.

Produce a consolidated balance sheet in standard format from the balances in the final two columns.

Consolidated income statement

Prepare a spreadsheet to calculate the consolidated income statement. Enter the name of each income or expense account on separate rows in column A.

Enter the balances from the parent company's income statement in columns B and C, putting expenses in column B and income in column C. Total each column and check the totals are the same.

Transfer the balances for the subsidiary companies to the spreadsheet, using two columns per company and entering expenses in the first column of each pair and income or revenues in the second column. Total the balances in each column and ensure that both columns for each subsidiary come to the same amount.

Identify, offset and eliminate any inter-company trading. For example, if the parent company has made sales to one of its subsidiaries, the revenue in the parent company and the expense in the subsidiary should be offset and neither should be included in the consolidated accounts.

Use two columns at the right of the spreadsheet for the consolidated income statement. Add together the debit balances in each row, excluding any inter-group trading figures, and enter the total in the final left-hand column. Repeat for the credit balances, placing the total in the final right-hand column.

Prepare a consolidated income statement in standard format from the balances in the final two columns of the spreadsheet.

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About the Author

Isobel Phillips has been writing technical documentation, marketing and educational resources since 1980. She also writes on personal development for the website UnleashYourGrowth. Phillips is a qualified accountant, has lectured in accounting, math, English and information technology and holds a Bachelor of Arts honors degree in English from the University of Leeds.