Consolidation Worksheet and Consolidated Financial

The General Ledger module's multi-level reporting facility enables users to prepare financial statements for individual companies and locations, for groups, and for all locations for all companies.  Financial statements can be prepared for all locations for all companies.

Combined entity reports may not always present the most accurate picture of financial activity for the entire organization because all transactions between locations in the organization are included in combined report totals.  By including these intercompany transactions, which do not affect the overall organizations profit (or loss) or net worth, combined level balance sheets and income statements can overstate the organization's actual amount of financial activity.

The General Ledger module provides the facility for preparing consolidated financial statements that exclude business transactions between organizational entities from combined level reports.

To prepare consolidated financial statements, a "dummy" location first must be created by adding a Reference File entity name (category 002) record.  This location is then used to enter transactions that reverse intercompany transactions entered for individual locations.  Thus, when combined level financial statements are prepared, intercompany transactions are not included.

To simplify the creation of consolidation journals, General Ledger generates a consolidation worksheet listing balances for user-defined account ranges. This report can be produced at a location level (one column per location) or at a company level (one column per company).  Both versions also provide total and worksheet columns. The procedures to set up the consolidation worksheet are described below.

1.   Identify account ranges.  Review the chart of accounts to determine all accounts or account ranges that should have balances listed on the report.

2.   Update Reference File.  Add consolidation worksheet (category 115) records to print the appropriate balances on the worksheet.  Each record defines the account number used as the last account to be included in the report line.  All other accounts greater than the previous worksheet record and less than or equal to the current worksheet record are printed on the current report line.  To reduce the size of the worksheet by not printing accumulated amounts for non-intercompany related accounts, the do not print flag on the worksheet record should be set to Y.

3.   The Consolidation Worksheet Request Screen is used to produce the consolidation worksheet.  Refer to the Input Procedures section for instructions to display the screen.

The following example illustrates consolidation processing.

Sales by company/location 001/001:

                  Accounts Receivable                             100
                              Sales                                                    100-

001/002 receives the cash:                          

                              Interco. Receivables (001)                      100
                  Accounts Receivable (001)                     100-
                  Cash (002)                                            100
                              Interco. Payable (002)                            100-

If a balance sheet were to be printed for both locations, the result would be overstated:

      Cash                             100                   Intercompany Payables 100
      Interco. Receivables      100                   Retained Earnings                     100
      Assets                          200                   Total L & C                                200

Another company/location must be set up to perform the elimination.  The consolidation worksheet facilitates this process by listing balances for user-defined account ranges so that accurate journals are entered to perform the elimination.  The manual journal entry for the dummy company/location would be:

                  Intercompany Payable               100
                              Intercompany Receivables                     100-

Note:    Intercompany Payables and Intercompany Receivables accounts in 001/003 (the dummy company/location) must have the same statement codes as the respective accounts in the other locations.  The financial statement program accumulates balances based on identical statement codes.

The final step is to run a financial statement for the combined three company/locations to reflect the corrected amounts.