Combined financial reporting is very important for understanding the current relationship between subsidiary and parent companies. This helps you get a good idea of the overall financial health of your organization or a section of your organization. Consolidating offers many benefits, especially when you automate the process. Let’s look at individual reporting versus consolidated to see why consolidated financial reporting software can make the difference between profit and loss.
Problems with Separate Entities
Many times, two businesses operate independently even though one is owned by the other. This solves a great deal of legal issues and helps to keep the books separate. However, because accounting is completely separate, communications can sometimes be difficult when financial information needs to be passed from one company to the other. You have two basic needs with this situation. You must use stand alone or individual statements and you also need to create consolidated financial statements.
What’s the Difference between Consolidated and Individual Reporting?
Suppose company B is a subsidiary of company A. With individual accounting methods, both B and A must report earnings as profit or losses and if B made 50,000 profit in the first quarter, it would not show up on A’s (the parent company) individual financial report. With consolidated financial reporting, company A is credited with profits earned by company B.
Business Transactions
Because company B is a separate legal entity from its parent (company A) there is often the need to conduct business (between companies) and the parent company may treat the subsidiary as they would an outside supplier or vendor. For example, Company A may provide metal fabrication services all over the country, and they may buy some raw materials from one of their companies (Company B). These transactions will show up on each company’s individual statements but may not be on a consolidated statement.
Loans
If a subsidiary is in financial trouble, it may need to borrow money and this can be provided by the parent company. This is very important for the accounting department of the subsidiary, but there is no need to mention it in a consolidated statement, because the overall financial well-being has not been affected. In other words, money passes hands, but it really doesn’t, but one can take advantage of the tax benefits of lending and borrowing money with this method.
Automating Consolidated Financial Reporting
There can be an enormous amount of work involved when it comes to tracking and keeping detailed records of an organization. This is why many companies are turning to automated financial reporting software. It not only simplifies the process, it removes a great deal of the hard work from both individual and consolidated reporting.
To learn more about automated consolidated financial reporting, come to Qvinci. Our software is made to fit most formats, and you can visit us online today at http://www.qvinci.com/industries/ for more details.
