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CHAPTER I.

HOME OFFICE AND


BRANCH ACCOUNTING
Accounting for Agency
*For this transaction, it only maintains separate
accounting system in the Home Office.
1. Receipt of revolving fund
Cash Agency
Cash on hand

Home Office
Cash
1. Home office initial investment for establishing a
branch
Investment in Branch
Cash

xx

2.

2. Branch acquires equipment to be carried by the


Branch.

Equipment
Cash

No entry

3.

3. Subsequent depreciation

Depreciation Expense
xx
Accum. Dep Equipment

xx

No entry

4.

xx

4. Branch acquires equipment to be carried by the


Home office.

Home office
Cash

Equipment - Branch
Investment in Branch

5.

xx
xx

xx
Sales - Agency

Cost of Sales - Agency


Inventory

xx

3. Collection by Home office of Agency Sales


Cash on Hand
A/R

xx
xx

4. Disbursement from revolving fund

5. Replenishment of revolving fund


- Agency

xx

xx
xx

Depreciation Expense
Home office

5. Subsequent depreciation

xx

xx

xx
xx

Furniture
Cash

7.

xx
xx

Depreciation Expense
Home office

6. Determine the profit and closing entries

7. Subsequent depreciation

Sales Agency
xx
Cost of Sales Agency
xx
Various expenses
- Agency
xx
Income Summary Agency
xx

Investment in Branch
xx
Accum. Dep. Equipment

xx

6.
No entry

- Branch

xx

xx

6. Home office acquires furniture to be carried by


Home office

xx
xx

8.
xx

8. Home office acquires furniture to be carried by


Branch

Furniture
Home office

Investment in Branch
Cash

9.

9. Subsequent depreciation

xx

xx

Investment in Branch
xx
Accum. Dep. Equipment

No entry

Various expenses
Cash on Hand

xx

xx

2. Order sent by Agency to Home Office


A/R

xx
Home office

xx

xx
xx

xx
Depreciation Expense
xx
Accum. Dep Equipment
Home Office

xx

No entry
10. HO transfers inventory. Freight paid by HO

Accounting for Branch

Branch
1.

Investment in Branch
Shipments to Branch
Cash

xx
xx
xx

11. HO transfers inventory. Freight paid by Branch


Investment in Branch
Shipments to Branch

xx
xx

Shipments from HO
Freight-in
Home Office
Cash

xx
xx

Profit
xx
*Individual profit are computed in billed price
xx
xx

18. To close the branch nominal account to


income summary:

12.
Home Office:
12. Purchase of inventory by the Branch from
outsider. Branch paid the Freight.
No entry

Purchases
Freight-in
Accounts Payable
Cash

xx
xx

No entry
xx
xx

13.
13. Sales on account of Branch

A/R

xx
Sales

xx

No entry
14.
14. Collection of Branch

Cash

xx
A/R

xx

Branch:
Sales
Inventory (end)
Shipments from HO
Purchases
Freight-in
Expenses
Income Summary

xx
xx
xx
xx
xx
xx
xx

19. To close the branch profit in the reciprocal


account

No entry
15.
15. Remittance of branch
Cash

Home Office
Cash

Home Office:
xx
xx

Investment in branch
Income Summary

xx
xx

xx
Investment in branch

xx

16. Branch expenses in w/c remain unpaid


No entry

16.

Branch:

Various Expenses
Cash
Accrued Expenses

xx
xx
xx

Income Summary
Home Office

xx
xx

20. Elimination Entries


17.
17. HO allocates expenses for Utilities and
General expenses
Investment in branch
xx
Utilities Expenses
xx
General Overhead Expense

Home Office
Investment in branch
Utilities Expenses
General Overhead Expense
Home Office

xx
xx

To compute the individual profit of Branch


(Home Office):

10.
Shipments from HO
Freight-in
Home Office
11.

xx
xx
xx

xx

xx

xx

Branch

xx

Sales
Cost of Goods Sold:
Inventory, beg.
xx
Shipments from HO(to B) xx
Purchases
xx
Freight-in
xx
TGAS
xx
Less: Inventory, end
xx
Gross Profit
Less: Expenses

Shipments to Branch
xx
Shipments from HO
To compute realized mark-up:

xx

Total mark-up
xx
Less: Unrealized mark-up (Inventory, end) xx
Realized mark-up
xx

xx
To compute the true profit of Branch (Home
Office):

xx
xx
xx

Sales
Cost of Goods Sold:
Inventory, beg.
xx
Shipments from HO(to B) xx
Purchases
xx
Freight-in
xx

xx

TGAS
Less: Inventory, end
Gross Profit
Less: Expenses
Profit
*True profit is computed at cost

xx
xx

True profit of Branch


xx
xx
xx
xx

xx

*In computing combined profit, a shipment from


Home Office (to Branch) is eliminated as well as
the unrealized mark-up.
To compute combined profit:

Other way to compute True Profit:


Individual Profit of Branch
xx
Realized mark-up
xx

Individual Profit of Home Office


Individual Profit of Branch
xx
Realized mark-up
xx

xx

Combined Profit

xx

Or
Individual Profit of Home Office
True profit of the Branch
Combined Profit

xx
xx
xx

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