What is the Difference Between Combined and Consolidated Financial Statements?
🆚 Go to Comparative Table 🆚The main difference between combined and consolidated financial statements lies in the level of control that one entity has over the other entities being reported. Here are the key differences between the two:
- Combined Financial Statements: In this presentation, the financial statements of the parent company and its subsidiaries are combined into a single document, but the financial statements of each individual entity remain distinct within the document. Combined financial statements are typically used when there is no controlling financial interest between the entities. They are generally easier to prepare than consolidated financial statements and allow investors to see the financial health of each individual subsidiary.
- Consolidated Financial Statements: In this presentation, the financial statements of the parent company and its subsidiaries are combined in a way that eliminates inter-company transactions and shows the overall financial position and results of operations of the group as a whole. Consolidated financial statements are prepared pursuant to generally accepted accounting principles (GAAP) and are required when the parent company owns more than 50 percent of a subsidiary. This presentation provides a comprehensive look at the entire group, but may not provide as clear a picture of the financial health of each individual subsidiary as combined financial statements do.
In summary, combined financial statements report the finances of the parent company and its subsidiaries separately within a single document, while consolidated financial statements combine the financial statements of the parent company and its subsidiaries to show the overall financial position and results of operations of the group as a whole.
Comparative Table: Combined vs Consolidated Financial Statements
The main difference between combined and consolidated financial statements lies in how they present the financial results of a parent company and its subsidiaries. Here is a table summarizing the differences:
Aspect | Combined Financial Statements | Consolidated Financial Statements |
---|---|---|
Purpose | Shows financial results of different subsidiary companies from that of the parent company. | Aggregates the financial position of a parent company and its subsidiaries, providing a holistic view of the company's overall health. |
Structure | Displays individual results of each subsidiary of the parent company. | Amalgamates the results of the subsidiary businesses into the balance sheet and cash flow statement of the parent company. |
Intercompany Transactions | Eliminates intercompany transactions to avoid double-counting. | Eliminates intercompany transactions to avoid double-counting. |
Income Statement | Adds the subsidiary companies' income and expenses. | Aggregates the income statement, balance sheets, and cash flow statements of the parent company and its subsidiaries. |
Both combined and consolidated financial statements eliminate intercompany transactions to avoid misrepresenting transactions that distort actual results of the parent company and its subsidiaries.
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