Month-End Financial Consolidation Process

Overview

This article describes the recommended month-end financial consolidation process for organizations operating multiple legal entities, multiple currencies, and multiple ledgers in GoldFinch.

Following this process helps ensure that:

• Foreign currency balances are properly revalued.
• Financial statements are accurately translated into the reporting currency.
• Intercompany transactions are eliminated correctly.
• Consolidated financial statements accurately reflect the organization's financial position and operating results.

Understanding the Two Currency Processes

GoldFinch performs two distinct currency-related processes during month-end consolidation.

Foreign Currency Revaluation

Foreign Currency Revaluation updates foreign-currency monetary accounts within an individual company's ledger—typically foreign currency bank accounts—to reflect current exchange rates. Unrealized foreign exchange gains and losses are recognized within that company's books.

Currency Translation

Currency Translation converts an entire subsidiary ledger into the reporting currency used for consolidated financial statements. Translation differences are recorded as the Cumulative Translation Adjustment (CTA) and do not modify the subsidiary's local accounting records.

These are separate accounting processes and should be completed in the sequence described below.

Prerequisites

Before beginning consolidation, verify that:

• All accounting periods have been closed or finalized as appropriate.
• All transactions for the reporting period have been posted.
• Consolidation periods have been created for the reporting month.
• Consolidation exchange rates have been entered and reviewed.
• Each company has completed its month-end accounting activities.

Step 1 – Complete Ledger Accounting

Complete all accounting activity in each company's ledger before beginning consolidation.

This typically includes:

• Accounts Receivable
• Accounts Payable
• Bank transactions
• General Journal Entries
• Inventory transactions
• Fixed Asset processing
• Intercompany transactions
• Month-end adjustments

Before proceeding, review each company's Trial Balance to ensure it is complete and accurate.

Step 2 – Revalue Foreign Currency Monetary Accounts

If a company ledger contains monetary accounts denominated in a foreign currency, perform Foreign Currency Revaluation before generating Currency Adjustments.

Typically, this process includes foreign currency bank accounts.

2.1 Reverse Prior Period Revaluation

Before running the current month's revaluation:

• Locate the prior period's revaluation journal.
• Use Reverse Clone to reverse that journal in the current accounting period.

Reversing the previous month's revaluation ensures that only the current period's unrealized foreign exchange gain or loss remains reflected.

2.2 Perform Current Period Revaluation

Manually run the Foreign Currency Revaluation process for the applicable accounts.

The resulting journal updates account balances using the current exchange rate and records any unrealized foreign exchange gain or loss.

Verify that:

• Revalued balances are correct.
• Gain and loss accounts are posting as expected.
• Revaluation journals have been posted successfully.

Step 3 – Enter Consolidation Exchange Rates

Enter or review the exchange rates used for financial statement translation.

These rates are used only during consolidation to translate subsidiary balances into the reporting currency. They do not modify balances within the subsidiary ledger.

Example 1 – Reporting Currency is USD

If:

• Parent reporting currency = USD
• Subsidiary ledger currency = CAD

The consolidation exchange rate must translate CAD balances into USD.

Example 2 – Reporting Currency is CAD

If:

• Parent reporting currency = CAD
• Subsidiary ledger currency = USD

The consolidation exchange rate must translate USD balances into CAD.

Best Practice

When entering consolidation exchange rates, always ask:

"What currency am I converting from, and what currency am I converting to?"

The answer should always be:

Convert subsidiary balances into the reporting currency used by the consolidated financial statements.

Entering exchange rates in the wrong direction will result in overstated or understated translated balances.

Step 4 – Create Currency Adjustments

After all foreign currency revaluations have been completed:

1. Create Consolidation Period End Closing – GoldFinch Clientcare
2. Create Currency Adjustment Journals – GoldFinch Clientcare
3. Review the generated General Ledger Summaries.

GoldFinch generates translation entries that convert subsidiary balances into the reporting currency. Translation differences are posted to the configured Cumulative Translation Adjustment (CTA) account.

Review the generated entries before proceeding.

Step 5 – Generate Intercompany Elimination Entries

After Currency Adjustments have been completed:

1. Open the Consolidation Period.
2. Follow Eliminate Intercompany Transactions – GoldFinch Clientcare to generate the Intercompany Elimination Journal.
3. Review the generated journal before posting.

Verify that expected intercompany receivables, payables, revenues, expenses, and other reciprocal balances are properly eliminated.

Step 6 – Replace Bank Accounts with Undeposited Funds

Before posting the elimination journal, review any lines that reference bank account General Ledger accounts.

If a bank account appears in the elimination journal:

• Replace the bank account with the designated Undeposited Funds (or Cash Clearing) account.
• Leave all remaining journal lines unchanged.

Why?

Intercompany elimination journals should not create or reduce actual bank balances.

Replacing bank accounts with Undeposited Funds:

• Preserves accurate consolidated cash balances.
• Properly eliminates intercompany cash transactions.
• Supports in-transit cash scenarios.
• Prevents fictitious bank activity from appearing in consolidated financial statements.

Example

Instead of:

• Debit Intercompany Payable
• Credit Bank Account

Use:

• Debit Intercompany Payable
• Credit Undeposited Funds

(or vice versa, depending on the generated journal).

Step 7 – Post the Elimination Journal

After reviewing and updating the elimination journal:

• Validate the journal.
• Correct any validation errors.
• Post the journal.
• Confirm the journal posted successfully.

Step 8 – Review Consolidated Financial Statements

After all consolidation processing has been completed, generate Consolidated Financial Reports – GoldFinch Clientcare:

• Consolidated Balance Sheet
• Consolidated Income Statement
• Consolidated Trial Balance (if applicable)

Review the following:

• Cash balances
• Intercompany receivables and payables
• Intercompany revenues and expenses
• Inventory balances (if applicable)
• Foreign exchange gain and loss accounts
• Cumulative Translation Adjustment (CTA)
• Retained earnings
• Equity balances

Investigate any unexpected translated balances or elimination differences before finalizing the reporting period.

Common Issues

Bank account balance changed after posting eliminations

Cause

An elimination journal posted directly to a bank account.

Resolution

Replace bank account General Ledger accounts with Undeposited Funds (or Cash Clearing) before posting the elimination journal.

Intercompany balances do not eliminate

Possible causes include:

• One side of the transaction has not been posted.
• Transactions were posted in different accounting periods.
• Intercompany accounts do not match.
• The elimination journal has not been regenerated after accounting changes.

Currency translation appears incorrect

Possible causes include:

• Exchange rates were entered in the wrong direction.
• The reporting currency is incorrect.
• Consolidation exchange rates are missing.
• Currency Adjustments were created before exchange rates were updated.

Cumulative Translation Adjustment (CTA) appears larger than expected

Possible causes include:

• Consolidation exchange rates changed after prior translations.
• Historical balances changed.
• Currency Adjustments were regenerated after exchange rates were modified.

Month-End Consolidation Checklist

Complete the following steps in order for each reporting period:

1. Complete ledger accounting.
2. Reverse prior-period foreign currency revaluation journals.
3. Perform current-period foreign currency revaluation.
4. Enter or verify consolidation exchange rates.
5. Create Currency Adjustments.
6. Review translation entries.
7. Generate the Intercompany Elimination Journal.
8. Replace bank accounts with Undeposited Funds where applicable.
9. Validate and post the elimination journal.
10. Review consolidated financial statements.

Following this sequence helps ensure that foreign currency balances are properly revalued, subsidiary ledgers are accurately translated into the reporting currency, intercompany transactions are eliminated correctly, and consolidated financial statements present an accurate view of the organization's financial position.

Related Articles

• Month-End Closing – GoldFinch Clientcare