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Finance: What is a Consolidated Income Statement? 12 Views


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What is a Consolidated Income Statement? Consolidated income statements (or any financial statements) are just the statements of all businesses within the same parent company. They are referred to as consolidated because the parent company’s income statement also includes the financial information from all of its subsidiaries.

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Transcript

00:00

Finance a la shmoop what is a consolidated income statement? alright

00:08

people put it together consolidated combined and yeah put [Rabbit appears in a cage]

00:13

together imagine that..well think of a consolidated income statement as a

00:17

mash-up of the income statements of two merging companies sort of like you know [Company merges into another]

00:23

when Rihanna met Eminem and there was that monster thing under the bed Reese's

00:28

Pieces thing you know peanut butter and chocolate and they mashed up and they

00:31

were awesome yeah together all right well yeah well only in this case we have

00:34

a consolidated income statement accounting is never that exciting we

00:38

have two drink company's lemonade stands are us being mashed up or consolidated [Boy stood at a lemonade stand]

00:43

with harmonic and peaceful make like a mint and leave yeah that's their

00:48

competitor so let's look at them line by line side by side and go through the

00:51

process of consolidation note the first line here as we compare the hindsight [Lemonade stand company balance sheets appear]

00:55

year of 2020 where lemonade stands our US had 20,000 units of lemonade sold and

01:02

make like a mint and leave had 10,000 units of tea sold so 30,000 if we were

01:08

reporting a consolidated income statement under the new company called

01:12

Le-mint-ade stands are us sorry we could stretch for that then yeah we'd report

01:18

30,000 total drink units sold and yes the number would be a bit more vague

01:23

because it wouldn't necessarily state what was lemonade and what was tea and

01:28

doing solid accounting separately we would probably break out those numbers

01:32

as separate line items if we were actually really good and no you cannot [Lemonade poured into a barrel]

01:36

pour them together and just make them one big fat Arnold Palmer sorry so now

01:41

go down to the revenues line alright the gross revenues from lemonade of 20,000

01:45

would simply be added to the gross revenues of 8,000 bucks for a mint

01:49

to show consolidated income statement revenues of $28,000 with net revenues of

01:55

19,000 plus 7,000 there or 26,000 using advanced calculus to find these numbers

02:00

now go down to the expenses area alright this mashup is well less elegant [Expenses section highlighted on balance sheet]

02:05

in it we don't have apples to apples consolidation like we do in the revenues

02:09

category where dollars map cleanly to dollars on the

02:13

expences lines well tea comprises different elements than lemonade so and

02:17

we've got some stretching to do we still have dollars but they're attributed to

02:21

different kinds of costs in the merged Mint company we have new line items like

02:26

pots and soil and greenhouse rent none of which are items in our lemonade

02:32

stand business because in the mint tea business we grow our own stuff that's [Person give thumbs up at tea plants]

02:35

kind of cool right so more than likely good accounting would simply itemize

02:39

each of these elements producing a detailed and granular income statement

02:44

that would eventually well basically add one side with the other noting the

02:48

pre-tax profits of eight thousand bucks from lemonade combining with sixteen

02:53

hundred dollars of profits for a mint for total pre-tax profits of 9600

02:58

dollars is it likely that the combined company finds what are called synergies

03:03

that is with more volume of product being ordered and/or more volume of [Definition of synergies appears on 100 dollar bill]

03:07

advertisements being placed might the merged company benefit from volume

03:12

discounts? sure what about cross promotion from lemonade drinkers to tea

03:17

drinkers sure what about the cost of accountants who used to separately

03:21

prepare each statement for taxes now combining efforts likely at relatively

03:26

cheaper prices per dollar earned? yes they negotiate with accountants like us

03:30

and get a better price all right well the gist is that when you consolidate an

03:34

income statement you're usually merging with or acquiring

03:38

a competitor or supplier in an analogous business space and most of the time good [Boy and girl cheering at a lemonade stand with stacks of cash]

03:43

things happen so yeah now that you know how to consolidate an income statement

03:47

you can well you know get busy..

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