What is the purpose of elimination subsidiary budgets?

The purpose of elimination subsidiary budgets is to manage how much intercompany activity is occurring. When multiple subsidiaries engage in transactions with one another, these transactions can lead to double counting of revenues and expenses within consolidated financial statements. By eliminating intercompany transactions, businesses can present a clearer picture of their financial performance and ensure that financial reports accurately reflect only external transactions.

This process is essential for creating consolidated financial statements that truly represent the financial status of the entire organization, excluding any internal transfers that do not impact the overall financial position. Therefore, managing intercompany activity effectively minimizes distortions in reported profits and provides a more accurate financial outlook.