Consolidated accounts are financial statements that present the financial position, performance, and cash flows of a group of entities as if they were a single entity. Consolidated accounts are prepared in accordance with the principles and rules of consolidation, which are the principles and rules that govern the combination of the financial statements of the entities in the group.
The key steps and rules in preparing consolidated accounts are as follows:
- Identify the entities in the group: The first step in preparing consolidated accounts is to identify the entities in the group. The entities in the group are typically subsidiaries of the parent entity, which is the entity that controls the group. The parent entity and the subsidiaries are referred to as the consolidated entities.
- Eliminate intragroup transactions and balances: The second step in preparing consolidated accounts is to eliminate intragroup transactions and balances. Intragroup transactions and balances are transactions and balances that arise between the consolidated entities, and are not transactions and balances between the group and third parties. Intragroup transactions and balances are eliminated in the consolidated accounts to avoid double-counting and to present the group’s financial position, performance, and cash flows as if the consolidated entities were a single entity.
- Measure the non-controlling interest in the consolidated entities: The third step in preparing consolidated accounts is to measure the non-controlling interest in the consolidated entities. The non-controlling interest is the equity interest in the consolidated entities that is not owned by the parent entity. The non-controlling interest is measured at its proportionate share of the fair value of the consolidated entities, and is presented as a separate component of equity in the consolidated financial statements.
- Prepare the consolidated financial statements: The fourth step in preparing consolidated accounts is to prepare the consolidated financial statements. The consolidated financial statements include the consolidated balance sheet, the consolidated income statement, the consolidated statement of comprehensive income, the consolidated statement of changes in equity, and the consolidated statement of cash flows. The consolidated financial statements present the financial position, performance, and cash flows of the group as if the consolidated entities were a single entity.
Overall, the key steps and rules in preparing consolidated accounts are to identify the entities in the group, eliminate intragroup transactions and balances, measure the non-controlling interest in the consolidated entities, and prepare the consolidated financial statements.
