Financial reporting provides us with information about the financial position, performance and changes in financial position of the reporting entity. All payers/tributaries of financial reporting within the public sector in the Republic of Croatia are obliged to submit the following basic financial statements: Balance sheet, Statement of incomes and expenditures, Statement of receipts and expenses, Statement of expenditures under the classification function, Statement of changes in the value of assets and liabilities, Report on obligations and notes/memo items to the financial statements. By the means of consolidation of the financial statements in the budget system we get insight into the financial position, performance and changes in financial position of interconnected budgets as well as budgetary and extra-budgetary users- all being regarded as a single entity within the consolidation process. This thesis is based on a field research and is thus aimed at a practical example. The survey was conducted in the municipality of Cepin which due to having one budgetary entity/beneficiary is obliged to submitting consolidated financial statements.