Reasons for not consolidating subsidiaries

If they only had Parent company financial statements it might look like Parent lacked cash, when companies it controlled had plenty of cash that they could send to Parent. Sub’s Sales Revenue is added Parent’s Sales Revenue to generate Consolidated Sales Revenue.

According to GAAP (Generally Accepted Accounting Principles), parent companies must prepare consolidated financial statements to report on the financial well-being of both the parent company and all its subsidiaries.

If you have a topic you are interested in, post your request in the comments or email me at The word ‘consolidated’ in financial statement titles signals that subsidiary company financials are added to parent company financials.

Large economic entities such as General Electric consist of one parent and hundreds of subsidiaries.

For example, it is common for one company to purchase smaller companies that can complement the primary business and make it even stronger.

In the consolidated report, the transactions among subsidiaries or a subsidiary and a parent company are eliminated to avoid double counting.

For example, if a parent company purchases goods or services from a subsidiary, the parent company’s purchase and the subsidiary’s sale are both eliminated so this transaction doesn’t distort the final figures.

Investors want consolidated financial statements because they are interested in the wealth controlled by the parent company, much of which resides in controlled subsidiaries.

By adding subsidiary financials to parent company financials, valuable information is disclosed. (hereafter Parent) invests in the equity of another company, named Subsidiary, Inc.

Leave a Reply