A consolidated income statement is a record of all of the income earned by a parent company and all of its subsidiary companies over a period of time. It is useful in providing a complete financial picture of the parent company, whose bottom line can be severely affected by the performance of the companies that it owns. When preparing a consolidated income statement, any transactions between subsidiary companies are not to be considered, since the net result for the parent company in zero. All of the revenues earned from sales from all of the companies under the same ownership must be totaled up, from which all costs associated with earning those revenues are subtracted to yield the consolidated net income.
Many companies that become successful branch out from their original business and purchase other companies to bolster their scope and impact on the market. In a case of a parent company holding many subsidiaries, it is important that all of the various financial reports be combined to produce a single report. One type of these reports that shows the financial standing of a parent company is a consolidated income statement.
The basics of a consolidated income statement are the same as the parts of an income statement for a single company. All of the expenses that are incurred in the process of producing whatever it is the company sells are added together. This number is then subtracted from all of the revenue generated by sales. Whatever amount results from this process is the company's net income.
In terms of a consolidated income statement, all of the figures from all of the subsidiary companies owned by the parent company must be figured into this equation. It is important to note that any gains and losses realized in the process of transactions between subsidiary companies must be zeroed out as part of the accounting process. For example, a sale of product from one subsidiary company to another results in no net gain for the parent company.
The most beneficial thing about a consolidated income statement is that it provides a complete overview of how much income the parent company's business operations are returning. While the subsidiary companies' singular statements can provide insight into how each is performing, the consolidated statement is the ultimate arbiter of whether or not a parent company is performing up to par. As a result, it is of great importance to company management, shareholders, and potential investors.