You would think that merging businesses is something big corporations do is not for you; however in practice it is very much so that small businesses merge just as often.

Whilst merging a company with another one is subject to all kinds or regulations, legal actions and so on, in terms of accounting there are a few things to remember as well. 

Process by process the merger should end up in one accounting, one set of routines. That’s just something that needs to happen for one set of financial statements to being prepared and presented.

However, the question that’s often asked from me is how I show this merger. The simple answer is that as of the date of the merger (e.g. the date it was agreed by signed contract the accounts are merged as one) the accounts of both parties are consolidated into as one account. Balances between parties are eliminated and as of the date in addition to balances also transactions are shown as one. For an example, there’s an entity A and entity B. Before the merger entity A had shown revenues for a 100 CU and entity B 50 CU. Let’s say that entity A was merged with entity B in a way that entity A stopped existing and instead entity B now has all of the business of entity A within its books. Starting from the merger entity B has made sales into the amount of 75 CU.

When it comes to presenting the financial statements (that is balance sheet and income statement), the balances are for the end of the period thus that should be simple, however transactions are for a period so this might be a bit trickier. For the reporting period of entity B there’s two revenues from our example – the one before the merger and the one after the merger. The revenues for the whole reporting period for entity B is then 125 CU (50 CU + 75 CU).

Had both entities formed a new entity its revenues would start from the date of the merger as both entities stopped existing.