Home Office and

Branch Accounting:
GENERAL PROCEDURES
 Sales Agency
 Established primarily to
display merchandise
 Does not carry stocks
 Takes orders but approval
and shipment of items done
by Home Office
 Only a working fund is
provided, imprest system is
adopted
 No separate accounting entity
Branch
 Sells goods out of a stock that
it maintains
 May function as an
independent business unit
 Makes sales, passes on
customer credit, collects
receivables, incurs expenses
 Has a branch accounting
system
Accounting for an Agency
 Normal accounting is followed in the books of home
office.
 It does not require complete set of books
 Summaries of working fund receipts and disbursements
and records of sales to customers are sufficient
 Agency Transactions
Transactions Home Office Books
Establishment of petty cash fund, Working Fund - Junior Agency 10,000
P10,000 Cash 10,000

Shipped merchandise to agency for Samples inventory - Junior Agency 4,000

use as samples, P4,000 Shipments to Junior Agency 4,000

Equipment - Junior Agency 20,000

Purchase of agency equipments, P20,000
Cash 20,000

Payment of salaries to employees Salaries Expense - Junior Agency 5,000

of agency, P5,000 Cash 5,000

Sales orders form agency are filled and Accounts Recievable - Junior Agency 100,000
customers are billed P100,000 and goods
are delivered by the HO
Sales - Junior Agency 100,000

The ff. expenses were incurred out of

working fund; utilities, P20,000; NO ENTRY REQUIRED - IMPREST
advertising expense, P3,000 and other FUND SYSTEM
exp, P4,000
End of the year adjustments:
a. Cost of goods sold identified with COGS - Junior Agency 60,000
Junior
Agency, P60,000 Shipments to Junior Agency 60,000

b. Depreciation exp for agency Depreciation expense - Junior Agency 2,000

equipment,
P2,000 Accumulated depreciation -
equipment - Junior Agency 2,000

Utilities expense - Junior Agency 2,000

c. Replenishment of agency's working Advertising expense - Junior Agency 3,000
fund
Other expense - Junior Agency 4,000
Cash 9,000

Advertising expense - Junior Agency 3,000

d. Agencies samples inventory amounted Samples inventory - Junior
to P1,000 NRV Agency 3,000
CLOSING ENTRIES
Sales 100,000
a. To close sales revenue account
Income Summary - Junior Agency 100,000

Income Summary - Junior Agency 60,000

b. To close COGS account
COGS - Junior agency 60,000

Income Summary - Junior Agency 19,000

Salaries exp -Junior Agency 5,000
Depr exp - Junior Agency 2,000
c. To close expense account
Utilities exp - Junior Agency 2,000
Advertising exp - Junior Agency 6,000
Other exp - Junior Agency 4,000

d. To close the Agency Income

Income Summary - Junior Agency 21, 000
Summary to General Income
Summary Income Summary 21, 000
 Agency Accounting Records Separate from
the Home Office
 It will maintain separate sales revenue and expense accounts.
 Beg. Inventory – HO xx
Add: Purchases xx
Total xx
Less: Shipment to agency xx
Merchandise available for
HO sales xx
Less: Ending inventory xx
Cost of goods identified with
HO sales xx
 Agency sales revenue and expenses accounts are closed into an income
summary account for each agency.
Accounting for Branches
 It operates as a separate business unit but is subject to be
controlled by the home office.
 Degree of self-management to be exercised is determined by
the HO however, the branch manager may have the authority
with effectiveness of management and control.
 A branch’s cash and merchandise and such other assets are
supplied by HO.
 The branch may purchase merchandise from outsiders to
satisfy certain local needs for goods not available from the
affiliated unit.
 The branch ships merchandise, bills its customers and makes
collections on account.
Keeps the books of
original entry
RECIPROCAL ACCOUNTS

 Home office account is a quasi-ownership equity account that shows

the net investment by the Home Office in the branch.
 Home office is credited for
 all merchandise, cash or other assets received from the home office
(“investment” from HO);
 for profits from branch operations
 Home office is debited for
 all cash, merchandise, or other assets sent by the branch to the home office
or the other branches (“drawings” by HO);
 for losses from branch operations
 The home office, in turn, keep a reciprocal account, called
Branch Current or Investment in Branch.

 This noncurrent asset account is debited:

 For cash, goods or services transferred to the branch
 For branch profits

 The account is credited:

 For remittances from the branch or other assets received from the branch
 For branch losses
Accounting for PPE Used by the Branch
Equipment is purchased by the HO for the branch
HOME OFFICE BOOKS:
Equipment – Branch xx
Cash or AP xx

BRANCH BOOKS:
No entry.

Branch will purchase the equipment

HOME OFFICE BOOKS:

Equipment – Branch xx
Branch Current xx

BRANCH BOOKS:
Home Office Current xx
Cash or AP xx
Billing Methods for Merchandise Shipped to Branch

 Three alternative methods:

 At home office cost (at original cost)
 At billed price or percentage above home office cost (original cost plus
mark-up based on cost)
 At the branch’s retail selling price (mark-up based on billed price)

 Shipment of merchandise to a branch does not constitute a sale because

ownership title has not changed
Transfer of Assets other than merchandise
by HO to branch
Home Office Books
a. When asset is to be carried on the branch books:
Branch Current xx
Appropriate asset account xx
b. When asset is to be carried on the HO books
Equipment – Branch xx
Equipment xx

Branch Books
a. When asset is to be carried on the branch books:
Asset account xx
Home Office Current xx
b. When asset is to be carried on the HO books
No entry. Branch will maintain memo record for the asset.
Purchase of Assets by Branch to be carried on HO books

Home Office Books

Equipment – Branch xx
Branch current xx

Branch Books
Home Office Current xx
Cash or AP xx
Transfer of merchandise by home office to branch

Home Office Books

Branch Current xx
Shipment to Branch xx

Branch Books
Shipment from Home Office xx
Home Office current xx
 Transactions of branch with outsiders

Home Office Books

No entry is required.

Branch Books
Transactions with outsiders are recorder in the usual manner.
Returns of merchandise by branch to home office

Home Office Books

Shipment to Branch xx
Branch current xx

Branch Books
Home Office Current xx
Shipment from Home Office xx
Remittance by branch to Home Office

Home Office Books

Cash xx
Branch current xx

Branch Books
Home Office Current xx
Cash xx
Preparation of Branch and Home Statements

 A separate balance sheet and income statement is prepared

for a branch so that management may review the operating
results and financial position of the branch.
 Home Office Current is treated as substitute for the capital
accounts on the balance sheet. Shipment from Office is
added to the beg inventory to show the merchandise
available for sale.
 Branch current account appear as an asset
 Shipments to Branch are deduction from merchandise
available for sale.
Reconciliation of Reciprocal
Accounts

 Reconciling items exist because of bookkeeping and

mechanical errors such as duplication of entries, slides
and transpositions on either set of books.
 At the end of each period the reciprocal account balances
must be brought into agreement before combined
financial statements are prepared.
 Reconciliation of Reciprocal Accounts
 The data to be considered in reconciling the two accounts may be classified as follows:
1. Debits in the branch account without corresponding credits in the home office account
2. Credits in the branch account without corresponding debits in the home office account
3. Debits in the home office account without corresponding credits in the branch account
4. Credits in the home office account without corresponding debits in the branch account

HOME OFFICE BOOKS:

Branch Current .
xx xx

Home Office Current .

xx xx
Home Office Books:
Branch Current
Nov. 30 Bal P31, 250 Dec.5 Cash received
from branch P10,000
Dec.31 Depreciation charge 18 Collection of
to branch 2,000 branch trade
31 Shipments to branch 4,000 receivable 500

Total P37,250 Total P10,500

Balance P26,750

Branch Books:
Home Office Current
Dec. 4 Cash sent to HO P10,000 Nov.30 Balance P31,250
28 Acquired equipment 1,500 Dec.31 Collection of HO
trade receivable 1,000
31 Depreciation charged
by HO 200

Total P11,500 Total P32,450

Balance 20,950