Definition of consolidating financial statements
A combined statement also makes sense in the event that two or more entities are under common control, but there is no actual parent company.As with much of the reporting that is done specific to a business, which story you're wanting to tell—in this case, assessing the parent and subsidiaries as a whole vs.After all, if the public hasn't heard of your subsidiaries, but they can sing the jingle to your parent company or recite the commercial word for word, the investing public won't be as concerned about the subsidiaries as separate entities.The investor just needs to know that the parent company is healthy and economically viable.Financial statements produced when one company, a parent, owns 50 percent or more of another company, which is its subsidiary.Once the 50 percent threshold is crossed, the subsidiary’s balance sheet, income statement, cash flow statement, and any other financial statements are combined with those of the parent company into a single set of statements.Within the one document, the parent's and subsidiaries' financial statements still remain distinct.Combined financial statements are generally easier to prepare than consolidated financial statements.
If you are a director of the parent corporation or LLC, and the general public knows your parent company and its brand better than it knows the subsidiaries, consider filing a consolidated financial statement.If an investor wants to know how each individual subsidiary is doing, it is helpful for the investor to see a combined financial statement, rather than a consolidated statement.When deciding whether to file a consolidated financial statement or a combined financial statement, it's a good idea to check with your financial advisor or accountant as to which he or she recommends.You need to know what the financial statements show about your corporation and the subsidiary companies that the parent corporation controls.The more you know about financial statements, the more likely you'll be a savvy corporate owner.
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The benefit to investors or potential investors is that they can see how each company—parent and subsidiaries, which may include corporations, LLCs, or both—is doing.