Balance Sheet vs Consolidated Balance Sheet | Top 9 Differences

The primary difference between Balance Sheet vs Consolidated Balance sheet is that Balance sheet is one of the financial statements of the company which presents the liabilities and the assets of the company at a particular point of time whereas Consolidated Balance Sheet is the extension of the balance sheet in which along with the items of company’s balance sheet, the items of the subsidiary companies Balance Sheet are also included.

Balance Sheet vs. Consolidated Balance Sheet

There’s a subtle difference between the balance sheet and the consolidated balance sheet. It is in the way both are prepared. The balance sheet Balance Sheet A balance sheet is one of the financial statements of a company that presents the shareholders' equity, liabilities, and assets of the company at a specific point in time. It is based on the accounting equation that states that the sum of the total liabilities and the owner's capital equals the total assets of the company.read moreis prepared by all companies since it is one major financial statement. The consolidated balance sheet isn’t prepared by all companies; rather, companies that have shares in other companies (subsidiaries) prepare a consolidated balance sheet.

Knowing about both of them is important since both are prepared in a different manner. Preparing a balance sheet is easy, and all you need to put in your company’s assets, liabilities, and shareholders’ equity. But in the case of a consolidated balance sheet, you need to include other items like minority interest.

Balance-Sheet-vs-Consolidated-Balance-Sheet

You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Balance Sheet vs Consolidated Balance Sheet | Top 9 Differences (wallstreetmojo.com)

In this article, we discuss the following –

Balance Sheet vs. Consolidated Balance Sheet [Infographics]

Balance sheet vs. Consolidated balances sheet differences are as follows –

Balance Sheet vs Consolidated Balance Sheet

You are free to use this image on your website, templates etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Balance Sheet vs Consolidated Balance Sheet | Top 9 Differences (wallstreetmojo.com)

What is the Balance Sheet?

In simple terms, a balance sheet is a sheet that balances two sides – assets and liabilities.

For example, if ABC Company takes a loan of $10,000 from the bank, in the balance sheet, ABC Company will put in the following manner –

  • First, on the “asset” side, there will be the inclusion of “Cash” of $10,000.
  • Second, on the “liability” side, there will be “Debt” of $10,000.

So, you can see that one transaction has two-fold consequences which balance each other. And that’s what balance sheet does.

Though, this is the most surface-level understanding of the balance sheet; once you understand it, we can develop this understanding.

Assets

Let’s understand assets first.

In the assets section, we will first include “current assets.”

Current assets are assets that can be quickly liquidated into cash. Here are the items we will consider under “current assets” –

Have a look at the example of Amazon’s current assetsCurrent AssetsCurrent assets refer to those short-term assets which can be efficiently utilized for business operations, sold for immediate cash or liquidated within a year. It comprises inventory, cash, cash equivalents, marketable securities, accounts receivable, etc.read moreAmazon - Current Assets

source: Amazon SEC Filings

Non-currents assets are assets that pay off more than a year, and these assets can’t be liquidated in cash easily. Non-current assetsNon-current AssetsNon-current assets are long-term assets bought to use in the business, and their benefits are likely to accrue for many years. These Assets reveal information about the company's investing activities and can be tangible or intangible. Examples include property, plant, equipment, land & building, bonds and stocks, patents, trademark.read more are also called fixed assets. After “current assets,” we will include “non-current assets.”

Amazon - Long Term Assets

source: Amazon SEC Filings

Under “non-current assets,” we would include the following items –

If we add up “current assets” and “non-current assets,” we will get “total assets.”

Liabilities

Again in liabilities, we will have separate sections.

First, we will talk about “current liabilities.”

source: Amazon SEC Filings

Current liabilities are liabilities that you can pay off in the short term. Current liabilities includeCurrent Liabilities IncludeCurrent Liabilities are the payables which are likely to settled within twelve months of reporting. They're usually salaries payable, expense payable, short term loans etc.read more

Let’s have a look at the current liabilities of Amazon.com.

Amazon - Current Liabilities

Now, we will look at long term liabilitiesLong Term LiabilitiesLong Term Liabilities, also known as Non-Current Liabilities, refer to a Company’s financial obligations that are due for over a year (from its operating cycle or the Balance Sheet Date). read more, which are also called “non-current liabilities.”

Noncurrent liabilities are liabilities which the company will pay off in the long run (in more than 1 year time).

Let’s have a look at what items we will consider under “non-current liabilities” –

Below are the non-current liabilities of Amazon.

Amazon - Long Term Liabilities

source: Amazon SEC Filings

If we total “current liabilities” and “non-current liabilities,” we will get “total liabilities.”

Now, we will talk about “shareholders’ equity,” which will come under Liabilities.

Remember the equation of the balance sheetEquation Of The Balance SheetBalance Sheet Formula is a fundamental accounting equation which mentions that, for a business, the sum of its owner’s equity & the total liabilities equal to its total assets, i.e., Assets = Equity + Liabilitiesread more?

Assets = Liabilities + Shareholders’ Equity

Shareholders’ Equity

Shareholders’ equity is the statement which talks about the equity capital of the company. Let’s look at the format to get a better understanding of it –

Amazon - Shareholders Equity

source: Amazon SEC Filings

If we total “shareholders’ equity” and “total liabilities,” we will get a similar balance, we ascertained under “total assets.” If “total assets” and “total liabilities + shareholders’ equity” don’t match, there’s an error somehow in any financial statementFinancial StatementFinancial statements are written reports prepared by a company's management to present the company's financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more.

Also, check out Negative Shareholders EquityNegative Shareholders EquityNegative shareholders equity refers to the negative balance of the shareholder's equity, which arises when the company's total liabilities are more than the value of its total assets. The reasons for such negative balance include accumulated losses, large dividend payments, and large borrowing for covering accrued losses.read more.

What is the Consolidated Balance Sheet?

Let’s say that you have a full-fledged company, MNC Company. Now you saw a small business, BCA Company, which may help you produce goods for your business. So you decide to buy the company as a subsidiary of MNC Company.

MNC Company now has three options.

  • MNC Company can let BCA Company run its operation autonomously.
  • MNC Company can absorb BCA Company completely.
  • Finally, MNC Company does something in between the first and the second option.

However, generally accepted accounting principles (GAAP) don’t give you an option. According to GAAP, MNC Company needs to treat BCA Company as a single enterprise.

Here you need to realize the value of consolidation. Consolidation means you would put together all the assets. For example, MNC Company has total assets of $2 million. MNC Company’s subsidiary BCA Company has assets of $500,000. So in the consolidated balance sheet, MNC Company will put the total assetsTotal AssetsTotal Assets is the sum of a company's current and noncurrent assets. Total assets also equals to the sum of total liabilities and total shareholder funds. Total Assets = Liabilities + Shareholder Equityread more of $2.5 million.

This is similar to all sorts of items that will take place on the balance sheet of each company.

Also, check out US GAAP vs. IFRS

Rule of thumb

You may think, how would you decide whether you should prepare a consolidated balance sheet or not? Here’s the rule of thumb you should remember –

If a company owns more than 50% of another company’s share, then the former company should prepare consolidated financial statement for both of these companies as a single enterprise.

Concept of “Minority Interest”

Walt Disney Minority Interest

source: Walt Disney SEC Filings

If a company owns 100% of another company, then there’s no complexity. The parent company will create a consolidated balance sheet for parent and subsidiary companies together.

The problem arises when the parent companyParent CompanyA holding company is a company that owns the majority voting shares of another company (subsidiary company). This company also generally controls the management of that company, as well as directs the subsidiary's directions and policies.read more owns less than 100% of the subsidiary company. In this sort of situation, the parent company consolidates the balance sheet as usual, but in shareholders’ equity, the parent company includes a small section “minority interest.” The idea is to claim all the assets and liabilities and to provide something back in the equity.

For example, if a company owns 55% of another company, a minority interest will be added (in a similar proportion) in the equity section. But all the assets and liabilities will be taken as 100%.

Also, have a look at this detailed guide to Minority InterestDetailed Guide To Minority InterestMinority interest is the investors' stakeholding that is less than 50% of the existing shares or the voting rights in the company. The minority shareholders do not have control over the company through their voting rights, thereby having a meagre role in the corporate decision-making.read more.

An alternative to a consolidated balance sheet

What a parent company does when it owns less than 50% of another company? In that case, the parent company would not create a consolidated balance sheet. Rather, the parent company will only include its own assets, liabilities, and shareholders’ equity. And the portion of interest in the subsidiary company as “investments” in the assets section.

For example, let’s say MNC Company owns a 35% stake in BCA Company. Now, MNC Company will prepare a balance sheet that is not consolidated. And at the same time, there will be no change in the assets, liabilities, and shareholders’ equity. But there will be a 35% stake of investment (the amount would be similar) in the assets section.

Key differences – Balance Sheet vs. Consolidated Balance Sheet

There are few key differences between balance sheet and consolidated balance sheet –

Balance Sheet vs. Consolidated Balance Sheet (Comparison Table)

Basis for ComparisonBalance SheetConsolidated Balance Sheet
1.    Definition – balance sheet vs. consolidated balances sheetBalance Sheet is an important financial statement of assets, liabilities, and capital for a particular period.Consolidated Balance Sheet summarizes the financial affairs of parent & subsidiary company.
2.    Objective The main objective is to showcase an accurate financial position to external stakeholders.The main objective is to reflect the accurate financial picture of an organization and its subsidiary.
3.    ScopeThe scope of the balance sheet is limited and narrow.The scope of the consolidated balance sheet is much broader.
4.    EquationAssets = Liabilities + Shareholders’ EquityAssets of (Parent + Subsidiary) = Liabilities ((Parent + Subsidiary) + Shareholders’ Equity + Minority Interest
5.    ComplexityThe preparation of the balance sheet is very easy.The preparation of the consolidated balance sheet is much complex.
6.    Time consumption – balance sheet vs. consolidated balances sheetThe balance sheet doesn’t need a lot of time to prepare.The consolidated balance sheet takes a lot of time to prepare.
7.    Key conceptsAssets, Liabilities, & Shareholders’ Equity.Assets, Liabilities, Shareholders’ Equity, & Minority Interest.
8.    AdjustmentThe balance sheet only balances the asset and the liability side of a single company since there’s no subsidiary.The consolidates balance sheet balances both parent & its subsidiary company.
9.    Pre-requisiteEvery company needs to prepare a balance sheet.A company that owns more than 50% share in any other company needs to prepare a consolidated balance sheet.

Also, check out – Learn Basic AccountingBasic AccountingAccounting is the formal process through which a company attempts to present its financial information in a way that is both auditable and usable by the general public. read more in less than 1 hour.

Conclusion – Balance Sheet vs. Consolidated Balance Sheet

The basic difference between the balance sheet and consolidated balance sheet is that in a consolidated balance sheet, there is the inclusion of another company (which we call subsidiary). And that’s why the whole process gets complicated.

As a parent company, you may decide to do otherwise (for example, not preparing the consolidated balance sheet and letting the subsidiary company operate their own business); but you’re bound by the accounting principlesAccounting PrinciplesAccounting principles are the set guidelines and rules issued by accounting standards like GAAP and IFRS for the companies to follow while recording and presenting the financial information in the books of accounts.read more of GAAP. And that’s why you need to prepare a consolidated balance sheet if you own a stake of more than 50% in the subsidiary company.

What Next?

I hope you understood the key differences between the balance sheet and the consolidated balance sheet. Which companies did you come across where you analyzed the two types of balance sheet separately? Do tell me about it in the comments!  

Balance Sheet vs. Consolidated Balance Sheet Video

 

Recommended Articles

This has been a guide to the Balance Sheet vs. Consolidated Balance Sheet. Here we discuss the top difference between balance sheet and consolidated balance sheet along with infographics and comparison table. You may also have a look at the following articles –