How to consolidate financial statements: a small-company example with eliminations

To consolidate financial statements, add a parent's and each subsidiary's statements line by line, then eliminate what the companies owe or sold each other so the group is counted once. The steps are: close every company for the same period, combine the statements, eliminate the parent's investment, eliminate intercompany balances, and eliminate intercompany revenue and expense. ASC 810-10-45-1 requires intra-entity balances and transactions to be eliminated.

Updated September 30, 2026 · 5 min read · By the Accountable team

The short version

Consolidated statements present a parent and its subsidiaries as one economic entity, so money they owe each other disappears.
You close each company first, match the intercompany balances, then post eliminations on a separate worksheet and never in the companies' own books.
Five eliminations cover most small groups: the investment, the loan, the amounts due, the management fee and the loan interest.
Eliminations do not change net income, and in the example the group's net income is $50,000, the sum of the two companies.
A subsidiary owned less than 100% is still consolidated in full, with the outside owners' share shown as noncontrolling interest.

Consolidation adds the companies up and removes what they owe each other

Consolidated statements show a parent and the companies it controls as if they were one business. The group cannot owe itself money or sell to itself at a profit, so anything that moves between members comes out. FASB's rule in ASC 810-10-45-1 is that intra-entity balances and transactions are eliminated, including open account balances, security holdings, sales and purchases, interest and dividends.

A holding company and the subsidiaries it owns consolidate. Companies with the same owner but no parent among them, such as two sibling LLCs, are usually shown as combined statements, which add the companies but have no investment to eliminate. Ask your CPA which one your lender or investor expects.

The example: a holding company and one operating company

Parent owns 100% of OpCo. Parent invested $200,000 of equity in OpCo and lent it $100,000 at 6%. OpCo paid Parent $6,000 of interest for the year and a $1,000-a-month management fee, with the December fee still unpaid. The tables show each company's books at year-end and the consolidated result.

Consolidation worksheet: balance sheet at year-end
Line	Parent	OpCo	Eliminations	Consolidated
Cash	$161,000	$313,000		$474,000
Accounts receivable from customers	$0	$20,000		$20,000
Loan receivable from OpCo	$100,000	$0	-$100,000	$0
Due from OpCo (December fee)	$1,000	$0	-$1,000	$0
Investment in OpCo	$200,000	$0	-$200,000	$0
Total assets	$462,000	$333,000	-$301,000	$494,000
Loan payable to Parent	$0	$100,000	-$100,000	$0
Due to Parent	$0	$1,000	-$1,000	$0
Total liabilities	$0	$101,000	-$101,000	$0
Paid-in capital	$444,000	$200,000	-$200,000	$444,000
Retained earnings	$18,000	$32,000		$50,000
Total liabilities and equity	$462,000	$333,000	-$301,000	$494,000

Every consolidated column balances: assets of $494,000 equal liabilities of $0 plus equity of $494,000. The group holds $474,000 of cash and $20,000 of customer receivables, and owes nobody outside.

The profit and loss loses the fee and the interest, and net income stays $50,000

Consolidation worksheet: profit and loss for the year
Line	Parent	OpCo	Eliminations	Consolidated
Customer revenue	$0	$240,000		$240,000
Management fee revenue	$12,000	$0	-$12,000	$0
Interest income	$6,000	$0	-$6,000	$0
Operating expenses	$0	$190,000		$190,000
Management fee expense	$0	$12,000	-$12,000	$0
Interest expense	$0	$6,000	-$6,000	$0
Net income	$18,000	$32,000	$0	$50,000

The fee and the interest are income to Parent and an expense to OpCo, so they cancel. If you skipped these eliminations, the group would show $258,000 of revenue that no customer paid for. Customer revenue of $240,000 less operating expenses of $190,000 leaves the true $50,000 profit.

Five elimination entries remove the investment, the loan, the fee and the interest

Each entry is a debit and a credit on the worksheet. They are not posted in either company's ledger. inDinero's guide and PwC's consolidation guide both describe eliminations as a consolidation-layer step.

The five elimination entries for the example
#	Debit	Credit	Amount	What it removes
1	OpCo paid-in capital	Investment in OpCo	$200,000	Parent's investment against OpCo's equity
2	Loan payable to Parent	Loan receivable from OpCo	$100,000	The intercompany loan
3	Due to Parent	Due from OpCo	$1,000	The unpaid December fee
4	Management fee revenue	Management fee expense	$12,000	The fee for the year
5	Interest income	Interest expense	$6,000	Loan interest for the year

Cash is never eliminated. The $161,000 and $313,000 are real money in real bank accounts, so the group's cash is $474,000.

How to consolidate in six steps

Step 1: Close every company's books for the same period, so each trial balance is final before you combine anything.
Step 2: Match the intercompany pairs. Each loan, fee and amount due in one company must equal the other company's side (intercompany transactions accounting).
Step 3: Put the companies' statements side by side, line by line, in one currency.
Step 4: Post the eliminations in a separate column: the investment against paid-in capital, then the balances, then the revenue and expense pairs.
Step 5: Add across to the consolidated column and check that assets equal liabilities plus equity.
Step 6: Keep the worksheet with the statements, so your CPA and lender can trace every elimination.

Three quick checks catch most mistakes: intercompany accounts in the consolidated column are zero, consolidated net income equals the sum of the companies' net income, and consolidated cash equals the sum of their cash.

Partial ownership, other currencies and mismatches need extra care

Less than 100% owned: consolidate 100% of the subsidiary's assets, liabilities, revenue and expenses, and show the outside owners' share as noncontrolling interest. If Parent owned 80% of OpCo, noncontrolling interest would get 20% of OpCo's $32,000 of net income, or $6,400. PwC notes that the amount of intra-entity profit eliminated does not change because of the outside owners.
Other currencies: translate each company's statements into the group's reporting currency before you combine them, and ask your CPA about the exchange rate differences that result.
Mismatched pairs: when Parent says $1,000 is due and OpCo says $800, find the missing or late entry and fix it in the company that is wrong. Do not plug the difference in the elimination column.

Questions founders ask

What are intercompany eliminations?

Entries on the consolidation worksheet that remove balances and transactions between group members, such as loans, interest, fees and the parent's investment, so the group is not counted twice.

Do I need consolidated financial statements for a small company?

Not for tax, where each company usually files separately. Lenders, investors and auditors often ask for them when one company controls others. Ask your CPA whether yours do.

Are eliminations posted in the companies' books?

No. Eliminations live only on the consolidation worksheet. Each company's own books keep the loan, the fee and the investment as they really happened.

What is the difference between combined and consolidated statements?

Consolidated statements combine a parent with companies it controls and eliminate the investment. Combined statements add companies under common ownership with no parent, so there is no investment to eliminate.

Does consolidation change net income?

Not when the eliminations are matched. The fee and the interest come out of both revenue and expense, so net income stays the sum of the companies' net income.

Consolidated statements with every elimination shown

On the Holding plan, $399 a month for 10 companies, group your companies and read the balance sheet, profit and loss, cash flow and trial balance in Combined, Eliminations and Consolidated columns. Open any line to see each company's amount and each elimination. A subsidiary owned under 100% consolidates at 100%, and your CPA adjusts for the minority share.

See multi-entity accounting

Sources, checked September 30, 2026: