Transacting within a group is known as ‘intra-group transactions’. The transactions of a group of companies are consolidated to create one overall account. The ‘inside’ of the company is also referred to as ‘outside’. However, it can be a very laborious process for consolidation managers. This is why it is essential to use a reliable tool for this task. With the help of a G/L consolidator, this task can be done in a matter of days.
The process of transferring companies involves identifying the right balance sheet and adjusting it accordingly. Depending on the type of consolidation, the acquisition of a company may result in a merger or a consolidation. For example, a Target corporation sold its pharmacy business to CVS Health, which intended to rebrand the pharmacies as MinuteClinic. This process of ‘consolidation’ is friendly, and the elimination process is a good way to reduce competition among the different pharmacy chains.
To prepare consolidated financial statements, a company must carefully manage its transactions with other companies. The intercompany transactions may result in distorted results. Therefore, companies must adjust intercompany transactions to eliminate them. In a consolidated financial statement, the intercompany receivables and payables are excluded, and intercompany capital and revenue are eliminated. A corporation’s consolidated financial statements are not affected by the intercompany transactions, unless the related party realises them through an independent transaction.
The process of combining two companies also involves balancing the daily balances of the entities. This process can be done online. In the process, the daily balances of the companies are consolidated in the consolidation company. The financial reports are generated anytime, as well as the daily balances. The financial reporting enables the consolidated transactions, and the reconciliation of all accounts is possible at any time. The importing of balances is an effective way to import the daily balances from one company to another.
Besides accounting, companies record their transactions with other companies. In a consolidated result, the related and unrelated companies must be removed. The consolidated results must be presented as one economic unit. While the transactions between related and unrelated companies do not require elimination, some will. A consolidated result must be presented in a single way to avoid confusion and ensure transparency. Moreover, a consolidated report should be accurate in all areas and must be easily understandable.
The process of integrating two companies involves many considerations. For example, it is important to account for the transaction at the ultimate parent’s historical basis. This does not necessarily mean the carrying value, but the basis pushed down by the parent is reflected in the accounting for the acquiring entity. As the process of consolidating two companies becomes more complex, a consolidated financial report will be more complicated than before. It is important to work with a reputable accounting firm to ensure that the transaction is accurate and transparent.
