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In the real world, Generally Accepted Accounting Principles (GAAP) require companies to eliminate intercompany transactions when the consolidate their financial statements (that is, they must exclude movements of cash, revenue, assets or liabilities from one entity to another) so as not to double count.
In business, consolidation occurs when two or more businesses combine to form one new entity, with the expectation of increasing market share and profitability and the benefit of combining talent, industry expertise, or technology.
Also referred to as amalgamation, consolidation can result in the creation of an entirely new business entity or a subsidiary of a larger firm.
Consolidation involves taking multiple accounts or businesses and combining the information into a single point.
In financial accounting, consolidated financial statements provide a comprehensive view of the financial position of both the parent company and its subsidiaries, rather than one company's stand-alone position.
However, if Company XYZ wants to consolidate its financial statements -- that is, it essentially "adds" the income statements, balance sheets and cash flow statements of XYZ and the four subsidiaries together -- the results give a better picture of the Company XYZ enterprise as a whole.