![]() General Ledger System – works well if an organization has a single ERP system, but becomes cumbersome if there is a need to collect consolidated financial statements and results from multiple systems used by different locations or subsidiaries. While financial consolidation and consolidation accounting were done manually for many years, in today’s world there are several types of financial consolidation software used for support and reporting. In a large enterprise, the financial consolidation process is typically handled by the Accounting department, which is under the supervision of the Controller or VP of Accounting/Reporting, and ultimately overseen by the Chief Financial Officer (CFO). So if a subsidiary has $100,000 in profit and the parent owns 30% of the subsidiary, the parent company would increase the value of the investment asset by $30,000 and record the $30,000 in revenue as an increase to retained earnings. Then when the subsidiary company reports its net income, the parent company reports revenue equal to its share of the subsidiary’s profits. Under the equity method of consolidation in the financial consolidation process, the parent company reports the investment in the subsidiary on the balance sheet as an asset that is equal to the purchase price. Financial accounting rules generally define a controlling stake as between 20% and 50% of a company. ![]() When a company owns a stake that is less than controlling but still allows it to exert significant influence over the business, it must use the equity method of accounting. In this case, all the subsidiary company’s assets, liabilities, revenues, and expenses are combined into the parent company’s financial statements. For instance, if the parent has a controlling interest in the subsidiary (more than 50%), then consolidation accounting is used. There are also different consolidation accounting methods that can vary depending on the controlling stake a parent organization has in a subsidiary.
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