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Consolidated cash flow, step by step
Updated
A consolidated cash flow statement shows how much cash the whole group made or used in a period, and where it went. You can't get it by adding up each company's own cash flow statement. You build it from the group's combined balance sheets, after money between your own companies is taken out.
Why adding them up goes wrong
Every transfer between your companies is cash out of one and cash into another. On each company's own statement, the two sides often land under different headings. A loan is an investing outflow for the lender and a financing inflow for the borrower. A management fee is an operating inflow for one company and an operating outflow for the other. Add the statements together and the totals still net to the right change in cash, but every heading in between is wrong.
The method: start from the consolidated balance sheets
Consolidate two balance sheets
This month's and last month's, with the intercompany pairs eliminated, so loans, investments and balances between your companies are gone.
Start from consolidated net income
Take the group's profit for the month from the consolidated profit and loss.
Add the change in each account
Current assets and current liabilities are operating activities. Long-term assets are investing. Long-term debt and owners' equity (other than this year's profit) are financing. An asset that went up used cash; a liability that went up brought cash in.
Leave the bank accounts aside
They aren't a movement; they're the answer. Last month's bank balances are cash at the start of the period.
Check it against the bank
Cash at start plus net cash for the month should equal this month's bank balances. If it doesn't, something is off in one of the books.
A worked example: a loan between two companies
In October, Holdings lends Retail $50,000. Retail spends $30,000 of it on equipment. Nothing else happens.
| October cash flow | Holdings | Retail | Elims | Combined |
|---|---|---|---|---|
| Loan to Retail (investing) | (50,000) | – | 50,000 | – |
| Equipment (investing) | – | (30,000) | – | (30,000) |
| Loan from Holdings (financing) | – | 50,000 | (50,000) | – |
| Net change in cash | (50,000) | 20,000 | – | (30,000) |
Added up without eliminations, the group would show a $50,000 investment and $50,000 of new borrowing that never left the group. After eliminations, the only real movement is the $30,000 of equipment, and the group's cash went down by exactly that.
When the bank check fails
- A bank account isn't marked as cash. If one company keeps a bank account under the wrong account type in QuickBooks, its balance shows up as a movement instead of cash.
- A transfer is in different months. One company recorded the transfer on the 31st, the other on the 1st. The group looks like it lost cash in one month and found it in the next.
- An elimination pair doesn't net to zero. The difference sits in a balancing account in Equity. It's left out of the cash flow, so the closing cash still agrees with the bank, but the pair needs fixing in the books. See intercompany eliminations.
Doing it with SigmaClose
SigmaClose builds the consolidated cash flow this way every month, from the QuickBooks Online balance sheets of each company after eliminations, with a column per company and the combined total, for any month, quarter or year. It runs the bank check for you and says which month is off. More on the whole process in how to consolidate QuickBooks Online companies.
Questions
Can I add up each company's cash flow statement to get the group's?
Not as they are. Money moving between your own companies shows up as cash out in one company and cash in at the other, usually under different headings (a loan out under investing, the same loan in under financing). Added together, the group looks busier than it was. Build the group's cash flow from the consolidated balance sheets instead, after eliminations.
Which method do consolidation tools use for a group cash flow?
Usually the indirect method: start from consolidated net income, then add the month's change in each balance sheet account. QuickBooks Online's own statement of cash flows works the same way for a single company.
Why doesn't my consolidated cash at the end of the month match the bank?
Most often a bank account isn't marked as cash in one company's chart of accounts, a transfer between companies is recorded in different months, or an elimination pair doesn't net to zero. Compare the statement's closing cash with the bank balances company by company to find which one.
Do intercompany loans affect the group's cash flow?
No. A loan from one of your companies to another moves cash inside the group. The lender's loan receivable and the borrower's loan payable cancel out, and so do the two cash movements. Only cash going to or coming from outside the group counts.
Does SigmaClose make a consolidated cash flow statement?
Yes, by month, from the consolidated balance sheets after eliminations, with a column per company and the combined total. It also checks that closing cash agrees with the bank balances and flags the month when it doesn't.