What is meant by "consolidation" in accounting?

Consolidation in accounting refers to the process of combining the financial statements of a parent company with its subsidiary companies. This is essential when a parent company owns more than 50% of the subsidiary's voting shares, which gives it control over the subsidiary's financial and operational decisions. The purpose of consolidation is to present a unified picture of the financial position and performance of the entire group as if it were one single entity.

This involves aggregating all the financial data from both the parent and its subsidiaries, adjusting for inter-company transactions to ensure that financial statements do not overstate revenues or expenses. The result is a consolidated financial statement, which provides investors, regulators, and analysts with comprehensive insight into the overall health of the combined entities.

Other options focus on different aspects of financial reporting or management. For example, combining sales data concerns operational analysis rather than formal financial consolidation, while eliminating duplicate entries relates more to bookkeeping accuracy than the process of consolidation itself. Additionally, dividing financial responsibilities among departments is more about internal organizational structure rather than the consolidation of financial statements.