There are significant differences between consolidated and combined financial statements, which is based on how they present their financial information. Combined statements are used mostly by businesses with subsidiary arms. Compared to the consolidated statements, the combined statements give a list of activities of a group of related companies in a single document. Every one of these related businesses still appears as a single entity.
To further explore what differentiates these two financial statements, we need to define each of them. With their explicit definition, we can adequately point out their disparity.
What is a Combined Financial Statement?
A combined financial statement is a financial statement with information on a customer’s various retail banking accounts in just one periodic statement. Financial institutions such as banks provide combined statements because it is cost-efficient and convenient for the customer. Individuals and businesses may also request for combined statements.
The benefit of a combined financial statement is that an investor can easily analyze the business’s results or financial status as a whole. The investor can use it to measure the performance of each company or subsidiaries separately from the parent company.
What is a Consolidated financial statement
It is the financial statement of a group of companies with the information on the assets, liabilities, cash flows, and other banking details of the parent company and its sub-companies being shown as that of a single economic entity. A consolidated statement presents an aggregate of the group of companies’ financial status into just one financial statement. An investor gets an overview of the company’s whole financial position rather than just viewing each subsidiary’s financial statement one after the other.
Combined vs. Consolidated Company Financial Statements
In consolidated company financial statements, the overall results of the company’s subsidiaries, as well as its parent, are presented as one entity. The activities of the subsidiary businesses become part of the parent company’s income statement, as well as in its cash flow and balance sheet statement. Meanwhile, in the combined accounting statement, all deposits, withdrawals, and other transactions and the beginning and ending balances of each company are included separately.
However, neither of them includes intercompany transactions. Intercompany transactions are the interactions that happen between the parent company and the subsidiary or between companies that act as a single entity. These transactions may be accounted for twice on the books, once for the parent, and then again for the subsidiary.
In consolidated financial statements, there is no increment in items for things like retained earnings and stock value. Whereas in a combined statement, equity for the stockholders is added across the accounts.
It is usually good to use combined financial statements considering the fact that consolidated statements can be misleading to some users of financial information. Hence, to clearly show the details of financial information, using a combined financial statement is the best option. The consolidated statement also has its place of importance, whereby it is the preferred option to appropriately show the overall financial position of the entire company than just the individual entities.
A minority interest account, also known as a non-controlling interest account, is created in both combined and consolidated financial statements. This minority interest account tracks interest in a subsidiary company that the parent does not control or own.