Chapter 1 - Home and Branch Accounting.docx

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 ¼ 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