Organizational Structure and Consolidations

Organizations often have complex structures with multiple business or operating units and legal entities with varying degrees of ownership. If your organization comprises more than one business unit or operating entity, you can consolidate these organizations when you report on overall operations, presenting financial statements that accurately describe your financial status.

For example, assume Consolidated Manufacturing is a multinational company that has a controlling interest in a United States business, as well as numerous other subsidiaries worldwide. The balance sheet for Consolidated Manufacturing lists its United States investment as an asset. Consolidated Manufacturing also owns several buildings used by subsidiaries that record the payment of rent to corporate headquarters through intercompany accounts. While these companies are separate legal entities, they represent one unified economic entity. To gain a complete picture of the entire organization, you combine (consolidate) all the assets and liabilities of each business unit, eliminating intercompany transactions and minority interest relationships by creating consolidation elimination journal entries.

You use trees to define the relationships among business units in a consolidation, creating a separate consolidation tree for each configuration. Included in each consolidation tree are the business units being consolidated and the elimination units to which eliminating journal entries are directed.

In the following example operating business units 1 and 2 are consolidated in consolidated business entity B and operating business units 3 and 4 are consolidated in business entity D. Consolidated entity D is further consolidated with an additional operating business unit not directly related to business unit 3 and 4 to consolidated business entity C. Finally, the consolidated business entities B and C are combined in the overall consolidation business entity A.

Consolidate Any Combination of Business Units