Multi-Entity and Consolidation

Separate books per entity, intercompany accounts, eliminations and management fees.

Reference Notes

Consolidation, variable interest entities (VIE), intercompany transactions and eliminations

A parent consolidates the entities in which it has a controlling financial interest, assessed under one of two models: a majority voting interest or, for a variable interest entity, being its primary beneficiary (ASC 810-10-25-38A). Consolidation combines the statements line by line and eliminates intercompany balances, sales and profit in inventory so the group reports only its dealings with the outside world, and the intercompany accounts have to agree between the two sets of books before elimination, which is why they are reconciled every close. A private company may elect not to apply the variable interest model to an entity under common control that meets the alternative's conditions, and discloses that it has (ASC 810-10-15-17AD). A noncontrolling interest is presented within equity for the share of a subsidiary the parent does not own.

Source: FASB ASC 810 (810-10-15-17AD, 810-10-25-38A)Last revised September 2026General information, not advice

Related-party transactions and owner transactions

Transactions with owners, their family members and companies under common ownership are related-party transactions, and the statements disclose their nature, the amounts and any balances outstanding. In a small company the common ones are owner loans, personal expenses paid through the business, management fees between sister entities and rent paid to an owner-held property. Each is fine when it is documented and priced on stated terms; each is a finding when it is not.

Source: FASB ASC 850Last revised September 2026General information, not advice

Multi-entity groups and sister companies under the same owner: separate books, intercompany accounts, management fees, combined statements, an owner's real estate company

Each legal entity keeps its own complete set of books, even under common ownership, and money that moves between them is recorded in intercompany accounts that agree on both sides before the entities are reported together. Sister companies owned by the same person, with no parent among them, may be presented in combined statements, which are often more meaningful than separate ones, rather than consolidated into one another (ASC 810-10-55-1B); an owner's real estate company that leases the building to the operating company is the classic variable-interest question, and a private company may elect out of that model for entities under common control (ASC 810-10-15-17AD) and account for such a lease on its written terms (ASU 2023-01). Shared costs are allocated on a written basis, such as a management fee or a cost-sharing agreement, so each entity's results mean something on their own. Mixing two entities' transactions in one ledger is the fastest way to lose the ability to sell, finance or audit either of them.

Source: FASB ASC 810 (810-10-55-1B, 810-10-15-17AD); ASC 842 (ASU 2023-01); ASC 850; practiceLast revised September 2026General information, not advice

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