Consolidation Method
An accounting approach for reporting parent and subsidiary companies as a single economic entity, eliminating intercompany transactions to show combined financial position and results.
Consolidation Method
An accounting approach for reporting multiple legally separate but controlled entities as a single economic entity, combining the financial statements of a parent company and its subsidiaries while eliminating intercompany transactions.
For example, when a parent company owns 80% of a subsidiary, consolidation accounting combines 100% of both entities’ assets, liabilities, revenues, and expenses on financial statements, eliminates intercompany loans and sales, and reports the 20% ownership interest held by others as “non-controlling interest.”
Consolidation presents the financial position and results of related entities as if they were a single company, providing a comprehensive view for stakeholders. The process involves adding line items from individual statements, eliminating intercompany balances and transactions to prevent double-counting, and recognizing non-controlling interests (formerly called minority interests) for partially-owned subsidiaries. This method is required under GAAP and IFRS for reporting entities where control exists, typically defined as ownership exceeding 50%, though control can exist in other arrangements. Alternative methods like equity method or proportionate consolidation may apply in joint control situations.