What is consolidation?

Consolidation is the process of combining the financial results of multiple subsidiary companies into the combined financial results of the parent company.

To consolidate is to combine assets, liabilities, and other financial items of two or more entities into one. In the context of financial accounting, the term consolidate often refers to the consolidation of financial statements, where all subsidiaries report under the umbrella of a parent company.

While preparing a consolidated financial statement, the parent company’s financial statements and its subsidiaries must be combined line by line by totalling together similar items such as assets, liabilities, income, and expenses.