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To consolidate (consolidation) is to combine assets, liabilities, and other financial items of two or more entities into one. In the context of financial accounting, the term consolidate often refers to the consolidation of financial statements wherein all subsidiaries report under the umbrella of a parent company.

The consolidation method works by reporting the subsidiary's balances in a combined statement along with the parent company's balances, hence consolidated.

Full consolidation, proportionate consolidation, and equity consolidation are the three consolidation methods.

It is mandatory for consolidated statements to be prepared when one company has control (i.e. owns more than 50% of the outstanding common voting stock) of another company unless that control is transitory or outside the hands of the majority owner (e.g. when the company or companies are in administration).

The consolidation method works by reporting the subsidiary's balances in a combined statement along with the parent company's balances, hence consolidated. Under the consolidation method, a parent company combines its own revenue with 100% of the revenue of the subsidiary.

General consolidation rules say you must consolidate whenever one company has a majority of the voting power in another company, meaning it controls at least 51 percent of the subsidiary's outstanding common stock.

Cost, Equity or Consolidation Cost is the simplest method of accounting for your investment. You record your acquisition as an asset on the balance sheet, setting the value as equal to the the purchase price. The only time you can use this approach is if you purchased 20 percent or less of the other company.