Professional Documents
Culture Documents
To learn the accounting and reporting for segments (i.e., branches and division) of a business entity.
Branches and divisions are separate economic and accounting entities from their home office. However, they are not separate legal entities from their home office.
Branch: a business unit located at some distance from the home office. This unit carries merchandise obtained from the home office, makes sales, approves customers credit, makes collections from its customers, and remits cash received.
Accounting for Branches 4
Divisions: a segment of a business entity which generally has more autonomy than a branch. Accounting for a division not operated as a separate corporation (i.e., subsidiary company) is similar to that of branches.
Accounting for Branches 5
Divisions: Accounting for a division operated as a separate corporation is different from that of branches and will be discussed in latter chapters (611). Consolidated financial statements are required for these business organizations.
Accounting for Branches 6
Based on Statement of Position 98-5 (SOP 98-5) Reporting on the Costs of Start-up Activities, all start-up costs, including costs associated with organizing a branch or division should be expensed in the accounting period in which the costs are incurred.
Accounting for Branches 7
Two alternative systems: 1. The branch does not maintain a complete set of accounting records. The home office serves only as an accounting and control center for the branches.
This chapter focuses on the second system that the branch maintains its own accounting records.
10
Home Office Ledger Account: This account is used by the branch to account for all transactions with the home office. It is credited for all cash, merchandise or other assets provided by the home office to the branch. It is debited for all cash, merchandise, or other assets sent by the branch to the home office or to other branches.
Accounting for Branches 11
Reciprocal Ledger Accounts Used by the Branch and Home Office (contd.)
Home Office Ledger Account: This account represents the net investment by the home office in the branch. At the end of a period, the balance of Income Summary account of a branch is closed to the Home Office account.
Accounting for Branches 12
Reciprocal Ledger Accounts Used by the Branch and Home Office (contd.)
Investment in Branch Ledger Account: This account is a reciprocal ledger account (to Home Office account) used by the home office to account for any transactions with the branches. It is debited for cash, merchandise and services provided to the branch by the home office and for the net income reported by the branch.
Accounting for Branches 13
Reciprocal Ledger Accounts Used by the Branch and Home Office (contd.)
Investment in Branch Ledger Account: It is credited for cash, or other assets received from the branch, and for net losses reported by the branch.
14
If a plant asset is acquired by the home office for a branchs usage and the accounting record for the plant asset is maintained by the home office, the accounting treatments are:
Accounting for Branches 15
For the home office: debit a plant asset account: branch, credit cash or a liability account. For the branch: no entry.
16
If a plant asset is acquired by a branch for its usage but the accounting record for this plant asset is maintained by the home office, the accounting treatments are:
Accounting for Branches 17
For the branch: debit Home Office and credit cash or a liability account. For the home office: debit a plant asset account: branch, and credit Investment in Branch account.
18
The home office may acquire plant assets and insurance for these assets. These plant assets are carried in the home office accounting record but used by branches. The home office may pay some taxes on behalf of branches, and arrange for advertising that benefits all branches.
Accounting for Branches 19
These expenses are usually allocated to branches in determining net income of branches. These expenses include depr. expense for the plant assets purchased by home office but used by branches.
Accounting for Branches 20
If the home office chooses to allocate these expenses to branches, the accounting treatments are: a. For the home office: debit Investment in Branch account, credit expense account. b. For the branch: debit expense account, credit Home Office account.
Accounting for Branches 21
When the home office serves only as an accounting and control center without any sales, most or all of its expenses may be allocated to the branches. In additional, the home office may charge each branch interest on the capital invested in each branch.
Accounting for Branches 22
Interest Charged by the Home office on the Capital Invested in Branches (contd.)
Such interest revenue recognized by the home office should be offset with the interest expense recognized by the branches in the combined financial statements.
23
Three alternative methods are available to the home office in billing the merchandise shipped to the branches: a. billed at the home office cost, b. billed at a percentage above the home office cost, and c. billed at the branchs retail selling price.
Accounting for Branches 24
Strength: widely used because of its simplicity Weakness: attributes all gross profits of the business to the branches.
25
Strength: is able to allocate a reasonable gross profit to the home office. Weakness: the net income reported by the branch may be understated and the ending inventories at branch are overstated for the enterprise as a whole.
26
Thus, for the combined financial statement, the home office must eliminate the excess of billed prices over cost (intracompany profits).
27
Strength: to increase the internal control over inventories at branches. Weakness: no gross profit assigned to the branches and the branchs net loss will equal its operating expenses.
28
Separate Financial Statements for Branch and for Home Office (for internal use only)
Separate financial statements for branches should be prepared so that management can evaluate the performance of each branch. The branchs financial statements may be revised by the home office to include the allocated expenses incurred by the home office.
Accounting for Branches 29
Separate Financial Statements for Branch and for Home Office (for internal use only) (contd.)
Also, the financial statements of branches should be revised to eliminate any intracompany profits on merchandise shipments or interest charge on capital investments.
30
Combined financial Statements for Home Office and Branch (for external use)
For investors, the home office and branches are a single business entity. Thus, combined financial statements should be prepared for external users. A four-column work sheet paper is used to facilitate the preparation of the combined financial statement.
31
Combined financial Statements for Home Office and Branch (for external use)(contd.)
In preparing the combined financial statements, the following accounts should be eliminated: a. Reciprocal ledger accounts b. Any intracompany profits or losses.
32
Combined financial Statements for Home Office and Branch (for external use)(contd.)
c. Any receivables and payables between the home office and the branch (or between two branches). The rest of accounts are just summed together for the combined financial statements.
33
Combined financial Statements for Home Office and Branch (for external use)(contd.)
Example I (textbook p131-p135) : Journal entries for operations of a branch when merchandise is billed at the cost of the home office with a perpetual inventory system.
34
Combined financial Statements for Home Office and Branch (for external use)(contd.)
Example I: (contd.)
Assume that Smaldino Company bills merchandise to Mason Branch at home office cost and that Mason Branch maintains complete accounting records and prepares financial statements. Both the home office and the branch use the perpetual inventory system. Equipment used at the branch is carried in the home office records.
Accounting for Branches 35
Combined financial Statements for Home Office and Branch (for external use)(contd.)
Example I: (contd.)
Expenses, such as advertising and insurance, incurred by the home office on behalf of the branch, are billed to the branch. Transactions and events during the first year (1999) of operations of Mason Branch are summarized below (start-up costs are disregarded):
Accounting for Branches 36
Combined financial Statements for Home Office and Branch (for external use)(contd.)
Example I: (contd.)
1. Cash of $1,000 was forwarded by the home office to Mason Branch. 2. Merchandise with a home office cost of $60,000 was shipped by the home office to Mason Branch. 3. Equipment was acquired by Mason Branch for $500, to be carried in the home office accounting records. (Other plant assets for Mason Branch generally are acquired by the home office.)
Accounting for Branches 37
Combined financial Statements for Home Office and Branch (for external use)(contd.)
Example I: (contd.)
4. Credit sales by Mason Branch amounted to $80,000; the branchs cost of the merchandise sold was $45,000. 5. Collections of trade accounts receivable by Mason Branch amounted to $62,000. 6. Payments for operating expenses by mason Branch totaled $20,000.
38
Combined financial Statements for Home Office and Branch (for external use)(contd.)
Example I: (contd.)
7. Cash of $37,500 was remitted by Mason Branch to the home office. 8. Operating expenses incurred by the home office and charged to Mason Branch totaled $3,000.
39
Combined financial Statements for Home Office and Branch (for external use)(contd.)
Example I: (contd.)
These transactions and events are recorded by the home office and by Mason Branch as follows:
Home Office Accounting Records Journal Entries: 1.Investment in Mason Branch 1,000 Cash 1,000 Mason Branch Accounting Records Journal Entries: Cash 1,000 Home Office 1,000
40
Combined financial Statements for Home Office and Branch (for external use)(contd.)
Example I: (contd.)
Home Office Accounting Records Journal Entries: 2. Investment in Mason Branch 60,000 Inventories 60,000 Mason Branch Accounting Records Journal Entries: Inventories 60,000
3. Equipment: Mason Home Office 500 Branch 500 Investment in Mason Cash Branch 500
500
41
Combined financial Statements for Home Office and Branch (for external use)(contd.)
Example I: (contd.)
Home Office Accounting Records Journal Entries: 4. None Mason Branch Accounting Records Journal Entries: Trade Accounts Receivable 80,000 Cost of Goods Sold 45,000 Sales Inventories 80,000 45,000
42
Combined financial Statements for Home Office and Branch (for external use)(contd.)
Example I: (contd.)
Home Office Accounting Records Journal Entries: 5. None Mason Branch Accounting Records Journal Entries: Cash 62,000
6. None
62,000
20,000
43
Combined financial Statements for Home Office and Branch (for external use)(contd.)
Example I: (contd.)
Home Office Accounting Records Journal Entries: 7. Cash 37,500 Mason Branch Accounting Records Journal Entries: Home Office 37,500 Cash 37,500
Investment in Mason Branch 37,500 8. Investment in Mason Branch 3,000 Operating Expenses 3,000
44
Combined financial Statements for Home Office and Branch (for external use)(contd.)
Example I: (contd.)
Investment in Mason Branch Date Explanation Debit Credit 1,000 1999 Cash sent to branch Merchandise billed to branch at home office cost 60,000 Equipment acquired by branch, carried in home 500 office accounting records 37,500 Cash received from branch Operating expenses billed to branch 3,000
Accounting for Branches
Combined financial Statements for Home Office and Branch (for external use)(contd.)
Example I: (contd.)
Home Office
Date 1999
Explanation
Debit
Credit
Balance
Cash received from home 1,000 1,000 cr office Merchandise received from 60,000 61,000 cr home office 500 60,500 cr Equipment acquired 37,500 23,000 cr Cash sent to home office Operating expenses billed 3,000 26,000 cr by home office
Accounting for Branches 46
The following working paper for combined financial statements serves three purposes: 1) to eliminate any intracompany profits or losses, 2) to eliminate the reciprocal accounts, & 3) to combine ledger accounts balances of home office and branches.
Accounting for Branches 47
Assume that the Mason Branchs ending inventories of $15,000 at the end of 1999 had been verified, the following work sheet is based on the transactions and events illustrated on pages 40-44. With additional assumed data for the home office trial balance.
48
All the year-end adjusting entries (except the home office entries on page 60) had been made. The working paper begins with the adjusted trial balance of the home office and Mason Branch. Income taxes are ignored in this illustration.
Accounting for Branches 49
SMALDNO COMPANY
Working paper for combined Financial Statements of Home office and Mason Branch. For Year Ended December 31,1999 (Perpetual Inventory System: Billing at Cost)
Accounting for Branches 50
117,000 -052
57,000 60,000
150,000 (10,000)
53
(a) To eliminate reciprocal ledger account balances * the elimination appears in the working paper only
Accounting for Branches 54
56
$20,000
$150,000 117,000
267,000 $287,000
58
Home Office Adjusting and Closing Entries and Branch Closing Entries Performed on 12/31/1999 (perpetual inventory system):
Home Office Accounting Records Adjusting and Closing Entries: None Mason Branch Accounting Records Closing Entries: Sales 80,000 Cost of Goods Sold 45,000 Operating Expenses 23,000 Income Summary 12,000
59
Home Office Adjusting and Closing Entries and Branch Closing Entries Performed on 12/31/1999 (perpetual inventory system): (contd.)
Home Office Accounting Records Adjusting and Closing Entries: Investment in Mason Branch 12,000 Income: Mason Branch 12,000 Income: Mason Branch 12,000 Income Summary 12,000 Mason Branch Accounting Records Closing Entries: Income Summary 12,000 Home Office 12,000 None
60
Example II (textbook p136-p141): Billing of Merchandise to Branches at Prices above Home Office Cost
Similar information as in the previous example, except that the home office bills merchandise shipped to Mason branch at 50% markup of the cost. Thus, the shipment of merchandise costing $60,000 will be recorded at the home office and branch as follows:
61
Example II (textbook p136-p141): Billing of Merchandise to Branches at Prices above Home Office Cost (contd.)
Journal entries for shipments to branch at prices above home office cost (perpetual inventory system):
Mason Branch Accounting Records Journal Entries: Inventories 90,000 Home Office 90,000
Home Office Accounting Records Journal Entries: Investment in Mason Branch 90,000 Inventories 60,000 Allowance for Overvaluation of Inventories: Mason Branch 30,000
62
Example II (textbook p136-p141): Billing of Merchandise to Branches at Prices above Home Office Cost (contd.)
Thus, the balances of both the Investment in Mason Branch account and Home Office account will be $56,000, instead of $26,000 due to the inventory mark up of $30,000.
63
Example II (textbook p136-p141): Billing of Merchandise to Branches at Prices above Home Office Cost (contd.)
SMALDINO COMPANY Flow of Merchandise for Mason Branch During 1999 Billed Home Markup (50% of Price Office Cost;33 1/3 % of Cost Billed Price) Beginning inventories Add: Shipments $60,000 $30,000 from home office $90,000 $60,000 $30,000 Available for sale $90,000 Less: Ending inventories 22,500 15,000 7,500 Cost of goods sold $67,500 $45,000 $22,500
Accounting for Branches 64
SMALDNO COMPANY Working paper for combined Financial Statements of Home office and Mason Branch For Year Ended December 31,1999 (Perpetual Inventory System: Billing above Cost)
Accounting for Branches 65
Eliminations Combined Dr (Cr) Dr (Cr) (48,000) (a) (22,500) 28,000 113,000 (b) 22,500 87,000 -066
117,000 -067
(30,000) 150,000
Balance Sheet (contd.) Accumulated depreciation of inventories: Mason Branch Trade accounts payable Home Office Common stock, $10 par Retained earnings(from statement of retained earnings above) Totals
-0-
-0-
-069
Branch Closing Entries and Home office Adjusting and Closing Entries (when billing at above the cost)
Branch Closing Entries--The closing entries for the branch at the end of 1999 are as follows: 80,000 10,500 67,500 23,000
Sales Income Summary Cost of Goods Sold Operating Expenses To close revenue and expense ledger accounts
70
Branch Closing Entries and Home office Adjusting and Closing Entries (when billing at above the cost) (contd.)
Home Office Income Summary To close the net loss in the Income Summary account to the Home Office account 10,500 10,500
71
Branch Closing Entries and Home office Adjusting and Closing Entries (when billing at above the cost) (contd.)
After the closing entries, the Home Office ledger account should have a balance of $45,500. Note: Home Office balance prior to the closing entries equals $56,000. $56,000-net loss of $10,500 = $45,500 (net loss decreases Home Office credit balance).
Accounting for Branches 72
Branch Closing Entries and Home office Adjusting and Closing Entries (when billing at above the cost) (contd.)
Home Office Adjusting and Closing Entries Income: Mason Branch 10,500 Investment in Mason 10,500 Branch To record net loss reported by branch
73
Branch Closing Entries and Home office Adjusting and Closing Entries (when billing at above the cost) (contd.)
Home Office Adjusting and Closing Entries (contd.) Allowance for Overvaluation of Inventories: Mason Branch 22,500 Realized Gross Profit: Mason Branch Sales 22,500 To reduce allowance to amount by which ending inventories of branch exceed cost.
Accounting for Branches 74
Branch Closing Entries and Home office Adjusting and Closing Entries (when billing at above the cost) (contd.)
Home Office Adjusting and Closing Entries (contd.) Realize Gross Profit: Mason 22,500 Branch Sales Income: Mason Branch 10,500 Income Summary 12,000 To close branch net loss and realized gross profit to Income Summary ledger account (Income tax effects are disregarded.)
Accounting for Branches 75
Branch Closing Entries and Home office Adjusting and Closing Entries (when billing at above the cost) (contd.)
After posting the above entries, the account balance for the following accounts is:
Investment in Mason Branch Allowance for Overvaluation of Inventories: Mason Branch Realized Gross Profit: Mason Branch Income: Mason Branch =45,500(debit)* =7,500(credit)** =0 =0
* Balance prior to the above entries equals $56,000. $56,000- 10,500 (net loss of the branch reduces the debit balance of the Investment account) = $45,500. ** $30,000-22,500 = $7,500. Accounting for Branches
76
Branch Closing Entries and Home office Adjusting and Closing Entries (when billing at above the cost) (contd.)
Similar working paper eliminations as on page 66-69 will be prepared for the following year (i.e., year 2000) when continuing with the perpetual inventory system with a price markup.
77
Textbook (p141-p144): When a periodic inventory system is adopted, inventory account cannot be used for the shipments of merchandise between the home office and the branch. Accounts such as Shipments to Mason Branch (used by the home office) and Shipments from Home Office (used by the branch) are used.
Accounting for Branches 78
Example:
Example: Continue with the Smaldino Company for a second year of operations (2000) but using the periodic inventory system for both the home office and Mason Branch. The beginning inventories for 2000 were carried by Mason Branch at $22,500 (home office cost is $15,000 due to a 50% markup by the home office).
Accounting for Branches 79
Example: (contd.)
Assume that during 2000, the home office shipped merchandise to Mason Branch that cost $80,000 and Mason was billed at $120,000. During 2000, Mason Branch sold $150,000 merchandise that was billed at $112,500. The journal entries to record the shipments and sales at a price above home office cost under the periodic inventory system are as follows:
Accounting for Branches 80
Example: (contd.)
Home Office Accounting Records Journal Entries: Investment in Mason Branch 90,000 Shipments to Mason Branch 80,000 Allowance for Overvaluation of Inventories: Mason Branch 40,000 None Cash (or Trade Accounts Receivable) 150,000 Sales 150,000
Accounting for Branches 81
Mason Branch Accounting Records Journal Entries: Shipments from Home Office 120,000 Home Office 120,000
Example: (contd.)
The branch inventories at the end of 2000 amounted to $30,000. The flow of merchandise for Mason Branch of year 2000 summarized below: SMALDINO COMPANY Flow of Merchandise for Mason Branch During 2000 Home Markup (50% of Billed Office Cost;33 1/3 % of Price Cost Billed Price) Beginning inventories $22,500 $15,000 $7,500 Add: Shipments 120,000 80,000 40,000 from home office Available for sale $142,500 $95,000 $47,500 Less: Ending inventories (30,000) (20,000) (10,000) Cost of goods sold $112,500 $75,000 $37,500
Accounting for Branches
82
Example: (contd.)
The activities for the branch for 2000 are reflected in the following two home office ledger accounts and the reciprocal Home Office ledger account of the branch: Investment in Mason Branch
Explanation Balance, Dec. 31, 1999 Merchandise billed to branch at markup of 50% above home office cost, or 33 1/3 % of billed price Cash received from branch Operating expenses billed to branch Debit Credit Balance 45,500 dr
Date 2000
120,000
4,500
Example: (contd.)
Allowance for Overvaluation of Inventories: Mason Branch
Date Explanation 2000 Balance, Dec. 31, 1999 Makeup on merchandise shipped to branch during 2000 (50% of cost) Debit Credit Balance 7,500 cr
40,000 47,500 cr
Accounting for Branches 84
Example: (contd.)
Home Office
Date Explanation 2000 Balance, Dec. 31, 1999 Merchandise receivable from home office
Debit
Credit
Balance 45,500 cr
Cash sent to home office 113,000 Operating expenses billed by Home office
Example: (contd.)
The working paper for combined financial statements under the periodic inventory system is as follows:
Adjusted Trial Balances Eliminations Combined Home Mason Office Branch Dr (Cr) Dr (Cr) Dr (Cr) Dr (Cr) (500,000) (150,000) (650,000) 45,000 400,000 (80,000) 22,500 (b) (7,500) 60,000 400,000
Income Statement Sales Inventories, Dec. 31, 1999 Purchases Shipments to Mason Branch
(a) 80,000
Accounting for Branches 86
Example: (contd.)
Income Statement (contd.) Shipments from home office Inventories, Dec. 31,2000 Operating expenses Net Income( to statement of retained earnings below) Totals Adjusted Trial Balances Home Mason Office Branch Dr (Cr) Dr (Cr) 120,000 (70,000) 120,000 85,000 -0(30,000) 27,500 10,000 -0Eliminations Combined Dr (Cr) (a) 80,000 (c) 10,000 (90,000) 147,500 132,500 -0Dr (Cr)
(d) 37,500
87
Example: (contd.)
Statement of Retained Earnings Retained earnings, Dec. 31, 1999 Net Income (from income statement above) Dividends declared Retained earnings, Dec. 31, 2000 (to balance sheet below) Totals
Accounting for Branches
Adjusted Trial Balances Home Mason Office Branch Dr (Cr) Dr (Cr) (117,000) (85,000) 60,000 85,000 (10,000) 27,500 10,000
Eliminations Combined Dr (Cr) Dr (Cr) (117,000) (d) (37,500) (132,500) 60,000 189,500 -088
Example: (contd.)
Balance Sheet Cash Trade accounts receivable (net) Inventories, Dec. 31, 2000 Allowance for overvaluation of inventories : Mason Branch Investment in Mason Branch Adjusted Trial Balances Eliminations Combined Home Mason Office Branch Dr (Cr) Dr (Cr) Dr (Cr) Dr (Cr) 30,000 9,000 39,000 64,000 70,000 28,000 30,000 (c) (10,000) (a) 40,000 (b) 7,500 (e) (57,000)
Accounting for Branches 89
92,000 90,000
(47,500) 57,000
Example: (contd.)
Balance Sheet (contd.) Equipment Accumulated depreciation of equipment Trade Account payable Home office Common stock, $10 par Retained earnings (from statement of retained earnings above) Totals Adjusted Trial Balances Elimination Combined Home Mason s Office Branch Dr (Cr) Dr (Cr) Dr (Cr) Dr (Cr) 158,000 158,000 (15,000) (24,500) (57,000) (150,000) (e) 57,000 (150,000) (15,000) (24,500)
-0-
-090
Example: (contd.)
(a) To eliminate reciprocal ledger accounts for merchandise shipments. (b) To reduce beginning inventories of branch to cost (c) To reduce ending inventories of branch to cost. (d) To increase income of home office by portion of merchandise markup that was realized by branch sales. (e) To eliminate reciprocal ledger account balances.
Accounting for Branches 91
Branch Closing Entries and Home Office Adjusting and Closing entries for the home office (with billing at above the
cost and using a periodic inventory system):
(1)Inventory (ending) Cost of Goods Sold Inventory (beg.) Shipments from Home Office
CGS=22,500+120,000-30,000
Accounting for Branches 92
Branch Closing Entries and Home Office Adjusting and Closing entries for the home office (with billing at above the
cost and using a periodic inventory system):(contd.)
(2)Sales
150,000 CGS 112,500 Operating expenses 27,500 Income Summary 10,000 10,000 10,000
Accounting for Branches 93
Branch Closing Entries and Home Office Adjusting and Closing entries for the home office (with billing at above the
cost and using a periodic inventory system):(contd.)
(1) Investment in Branch 10,000 Income: Mason Branch 10,000 (2) Allowance for Overvaluation of Inventories 37,500 Realized Gross Profit : Mason Branch 37,500
Accounting for Branches 94
Branch Closing Entries and Home Office Adjusting and Closing entries for the home office (with billing at above the
cost and using a periodic inventory system):(contd.)
95
Branch Closing Entries and Home Office Adjusting and Closing entries for the home office (with billing at above the
cost and using a periodic inventory system):(contd.)
Balances of Investment in Mason Branch, Allowance for Overvaluation of Inventories, Realized Gross Profit, Income: Mason Branch and Home Office accounts after the above adjusting and closing entries are:
96
Branch Closing Entries and Home Office Adjusting and Closing entries for the home office (with billing at above the
cost and using a periodic inventory system):(contd.)
Investment in Mason Branch = $67,000 (dr.) (57,000+10,000) Allowance for Overvaluation of Inventories = $10,000 (cr.) (47,500 -37,500)
97
Branch Closing Entries and Home Office Adjusting and Closing entries for the home office (with billing at above the
cost and using a periodic inventory system):(contd.)
Realized Gross Profit = $0 (37,500- 37,500) Income: Mason Branch = $0 (10,000-10,000) Home Office (a reciprocal account of Investment) = $67,000 (cr.) (57,000+10,000)
Accounting for Branches 98
At the end of an accounting period, the balance of the Investment in Branch ledger account in the records of the home office may be different from that of the Home Office ledger account of the branch. This is because some transactions may have been recorded by the home office but not the branch office.
Accounting for Branches 99
Example (textbook p145): Assume that the home office and branch accounting records of Mercer Company contain the following data on 12/31/99:
100
8,000
Accounting for Branches
49,500 dr
101
1999 Nov. 30 Balance Dec. 7 Cash sent to home office 28 Acquired equipment 30 Collection of home office trade accounts receivable
The following adjusting entries are recorded prior to the preparation of the working paper for the combined financial statements (assuming a perpetual inventory system)
103
1.Equipment: Arvin Brach 3,000 Investment in Branch: Arvin 2.Investment in Branch: Arvin 2,000 Trade Accounts Receivable
Accounting for Branches
3,000
2,000
105
The balance of Investment in Branch: Arvin ledger account at the home office equals: $ 49,500 3,000 + 2,000 $ 48,500 (dr.) (cr.) (dr.) (dr.)
106
After posting the above adjusting entries: The balance of Home Office ledger account at Arvin Branch equals: $ 41,500 1,000 + 8,000 $ 48,500 (cr.) (dr.) (cr.) (cr.)
Accounting for Branches 107
When it is necessary to transfer merchandise or assets from one branch to another branch, Home Office Ledger account is used by the branches. The home office will transfer the inventory (or assets) from investment in one branch to another branch. Any excess freight costs incurred for the transfer between branches should be expensed.
Accounting for Branches 108
The home office shipped merchandise costing $8,000 to Katti Branch and paid freight costs of $500. A week later, the home office instructed Katti Branch to transfer this merchandise to Danddi Branch. Katti paid $400 for the transfer. If the merchandise had been shipped directly from the home office to Danddi, the freight costs would have been $600.
Accounting for Branches 109
Investment in Danddi Branch 8,600 Excess Freight Expense 300 Investment in Katti Branch
Accounting for Branches
8,900
110
Home Office
8,900
8,600
112