A consolidated income statement combines the revenue earned by a parent company and its subsidiaries, providing a complete financial picture. Transactions between subsidiaries are not considered, and all revenue and costs are added together to obtain the consolidated net income. This statement is important for management, shareholders, and investors.
A consolidated income statement is a record of all revenue earned by a parent company and all of its subsidiary companies over a period of time. It is useful for providing a complete financial picture of the parent company, whose bottom line can be severely affected by the performance of the companies it owns. When preparing a consolidated income statement, transactions between subsidiary companies should not be considered, since the net result for the parent company is zero. All revenue earned from the sales of all companies under the same ownership must be added together, from which all costs associated with earning that revenue are subtracted to obtain the consolidated net income.
Many companies that become successful branch out from their original business and buy other companies to bolster their reach and market impact. In the case of a parent company with many subsidiaries, it is important that all the various financial reports are combined to produce a single report. One type of these reports that shows the financial position of a parent company is a consolidated income statement.
The basics of a consolidated income statement are the same as the parts of an income statement for a single company. All the expenses incurred in the production process of whatever the company sells add up. This number is subtracted from all revenue generated from sales. Any amount resulting from this process is the company’s net income.
In terms of a consolidated income statement, all the figures for all subsidiary companies owned by the parent company should appear in this equation. It is important to note that any gains and losses realized in the process of transactions between subsidiary companies must be zeroed out as part of the accounting process. For example, a sale of product from one subsidiary company to another does not generate net profit for the parent company.
The most beneficial thing about a consolidated income statement is that it provides a comprehensive overview of how much revenue the business operations of the parent company are returning. While the singular statements of subsidiary companies can provide insight into how each is performing, the consolidated statement is the final arbiter of whether or not a parent company is performing up to par. As a result, it is of great importance to the company’s management, shareholders and potential investors.
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