What is equity method in SAP EC-CS - Consolidation?

SAP Term: equity method

• Component: EC-CS

• Component Name: Consolidation

• Description: An accounting technique used for consolidating affiliated enterprises, but also subsidiaries or joint ventures all of which are refered to as consolidation units that are not consolidated using the purchase or proportional methods. Reported financial data of equity-method units is not included in the consolidated financial statements. Therefore, you do not need to enter that data into the system. Only changes in the stockholders' equity of the company are taken into consideration; these affect, in particular, the investment value stated in the consolidated balance sheet. Therefore, the term "valuation method" also applies here.

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• Key Concepts: 
  The equity method is a method of accounting used in the EC-CS Consolidation component of SAP. It is used to account for investments in associated companies. Under this method, the investor’s share of the investee’s profits or losses is recognized in the investor’s income statement. The investor’s share of the investee’s net assets is also recognized in the investor’s balance sheet. 
  
  How to use it: 
  In SAP, the equity method is used to account for investments in associated companies. The investor’s share of the investee’s profits or losses is recognized in the investor’s income statement and the investor’s share of the investee’s net assets is also recognized in the investor’s balance sheet. The equity method can be used to calculate the consolidated financial statements of a group of companies. 
  
  Tips & Tricks: 
  When using the equity method, it is important to remember that only the investor’s share of the investee’s profits or losses and net assets are recognized in the investor’s financial statements. The investor does not recognize any other assets or liabilities of the investee. 
  
  Related Information: 
  The equity method is similar to the cost method, which is another method of accounting for investments in associated companies. Under the cost method, only the cost of the investment is recognized in the investor’s financial statements. The cost method does not recognize any changes in value of the investment over time.