How to Report a Subsidiary's Revenues & Expenses on a Consolidated Income Statement

A consolidated income statement is the financial performance of different related entities presented like that of a single entity. It is more of a one-stop shop for profitability information of your small business and the subsidiaries in which you command controlling stakes. Indeed, you must have the majority shareholding stake in a subsidiary to combine its revenues and expenses with those of the parent company. A consolidated income statement simplifies the interpretation of your group’s financial performance for shareholders, investors, the Internal Revenue Service and other interested stakeholders.

Begin by ensuring the separate income statements of your small business and the subsidiaries are accurate. Add the total revenue amounts of each subsidiary to the total revenue of the parent company. The resulting amount will be the total amount of revenue your business generated during the accounting period.

Select the revenues generated from inter-unit transactions between subsidiaries and the parent business. Subtract the totals of these inter-unit revenue transactions from the total amount of revenues of the business. For example, if a subsidiary sold stationery worth $2,800 to the parent business, strike out this amount to avoid duplicating sales recognition. Once you complete the revenue reconciliation, post the net revenue amount as the first line item in consolidated income statement.

Add the expenses of units to the expenses of the parent company. Unlike revenues, which are presented as blanket figures in the separate financial statements, different expenses are posted in different line items. Therefore, you need to tie the expense items of the subsidiaries to the corresponding expense items of the parent business. For example, add the cost of goods sold, salaries and insurance costs of the subsidiary to the cost of goods sold salaries and insurance costs of the parent company respectively.

Now that you have eliminated inter-unit revenues, you need to cancel out the inter-unit expenses you incurred to generate those revenues. Identify the expenses your parent business incurred in favor of the subsidiaries and vice versa. Subtract these inter-unit expense amounts from the totals of the corresponding expense items in the income statement to avoid double-counting. Post the adjusted expense amounts in their respective line items in the consolidated balance sheet.