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BRANCH ACCOUNTING
SPECIAL PROCEDURES
Prepared by:
Michale Jacomilla
Rhea Zeen Ellyeza Ylaya
 Recall:
Billing Methods for Merchandise Shipped to Branch

1. At home office costs

2. At billed price
3. At the branch’s retail selling price
 Goals:

01 02 03

INTER-BRANCH Shipments to branch AT BRANCH’S RETAIL

TRANSACTIONS AT PERCENTAGE SELLING PRICE
ABOVE COST
a. Transfer of Cash Allowance for Purpose/ advantage
b. Transfer of merchandise Overvaluation of
c. Freight Cost on shipments Shipment (AOI)
 01
INTER-BRANCH TRANSACTIONS

branches may be authorized by the home office to make

inter-branch transfer of resources.

accounting procedure is as if the transaction was between the

home office and the branch.

branch does not carry a reciprocal ledger account with

another branch
 Assume that upon authorization by
Inter-branch the home office, Branch #1 sends
cash of 2,000 to Branch #2. Provide
Transfer of Cash a journal entry.

Home office Book

Instead of opening special Branch #2 2,000
accounts with member Branch #1 2,000
branches, branches will Branch #1 Book
normally clear such transfers Home Office 2,000
through the home office Cash 2,000

Branch #2 Book
Cash 2,000
Home office 2,000
 Freight Cost on
Inter-branch shipments
Transfer of
Final sale location is significant
Merchandise element
Freight costs shipped between HO and
authorization of transfer branch locations should ne included in
from one branch to branch inventory & COGS measurements
another may be necessary
from home office. Transfer of merchandise does not
increase the CA of inventories
the same treatment of cash
transfer. Excess freight costs are recognized as
expense of the HO.
 Inter-branch Transfer of and Freight Costs

Assume the following information: Journal Entry

Home office Book
Branch #1 1,700
Home Office ships goods to Shipments to Branch #1 1,500
Branch #1, billing the branch Cash 200
for the goods at P 1,500 plus
freight charges incurred for Branch #1 Book
P200 Shipments from Home Office 1,500
Freight-in 200
Home Office Current 1,700
 Journal Entry
Home office Book
At a subsequent date, the home Branch #2 1,720
Excess Freight 130
office authorizes the transfer of Branch #1 1,850
these goods to Branch #2. Branch
#1 pays the freight charge on the Shipments to Branch #1 1,500
transfer for P150. If the shipment Shipments to Branch #2 1,500
had been made by the home office
Branch #1 Book
directly to Branch #2 the freight Home Office Current 1,850
charge would have been P220. Shipment from Home Office 1,500
Freight-in 200
Cash 150

Branch #2 Book
Shipments from Home Office 1,500
Freight-in 220
Home Office 1,720
 02
SHIPMENTS TO BRANCH AT PERCENTAGE ABOVE COST

bill merchandise to branches at retail prices or at an

arbitrary amount higher than cost.

shipment is still recorded by the home office at cost but the

branch investment account is recorded at the billed price

A new account title is created for the di3erence to serve as a

valuation account “Allowance for Overvaluation of Shipment”
 Assume that in 2020 the Home office shipped merchandise with a price
of P360,000, cost of P300,000 or a mark up of 20%.

TO ILLUSTRATE FURTHER:

Original Cost of Merchandise: 300,000

Billed Price: 360,000
Mark Up price (20%): 60,000

Journal Home Office Book

Entry: Investment in Branch
Cash
xxx xxx
xxx xxx
Allowance for
Overvaluation of Shipment 60,000
 03
AT BRANCH’S RETAIL SELLING PRICE

Also known as Mark up based on billed price

Purpose:
➢ to conceal information concerning branch earnings from
branch officials and:
➢ to provide a more effective control over merchandise
handled by the branch
In accounting for shipments, HO may follow a procedure
the same to that employed for shipments at an arbitrary
rate above cost.
TO FURTHER ILLUSTRATE:
 Things to Remember

Branch Income is NOT

CLOSE to investment in
Home office records the Branch; but in Home office
overvaluation account

AOI of branch inventory is Only the reported

also called Unrealized profit income/loss of branch is
in branch inventory closed to investment in
branch
Recap for Mark-up transactions
Agency Accounting
Branch and Agency distinguished:
Sales Agency
❑ Displays merchandise and takes
customers’ orders but does not carry out
inventory to fill customers’ orders
❑ Forwards customers’ orders to the home
office for processing. Customers remit
payments directly to the home office.
❑ May hold revolving cash fund which is
replenished when depleted.
❑ Not a separate accounting entity.
❑ Maintains only cash records to account for
the revolving cash fund.
Branch
❑ Carries inventory to fill customers’ orders ( or
provides services similar to those provided by the
home office)
❑ Processes customers’ orders, makes normal
warranties, and makes own collections
❑ Has its own assets and liabilities and generates
and incurs its own income and expenses.
❑ A separate accounting entity for internal
reporting.
❑ Maintains a complete set of accounting records
and prepares own financial statements which are
combined with the home office’s financial
statements for external reporting.
Examples:
Sales Agency Branch

a.) A booth located in a shopping a.) A branch of Banco De Oro

mall that offers debit or credit card located in a shopping mall.
issued by bank. Applicants
complete their application with the
bank’s office

b.) A booth on a side walk offering b.) Mang Tony’s fish ball – New
Globe internet connection. York branch. Serves freshly cooked
Customers complete their fish ball straight from the frying pan,
transactions with Globe’s office. etc.
 Agency Transactions Home Office Books
Jan. 1 Cash - Agency 1,000

Illustration:
Receipt of revolving from home Cash 1,000
office.

Accounting Jan. 1-31

Orders sent by agency to home Accounts Receivable 200
for Agency office for processing. Sales – Agency
Cost of Sales – Agency 120
200

Inventory 120

Collection by home office of agency Cash 200

sales. Accounts Receivable 200

Jan. 1-31 No entry in HO books. The agency records the

Disbursements from the revolving disbursements in its’ log book.
fund.
Jan. 31 Various expenses – Agency 50
Replenishment of revolving fund. Cash 50

To determine the profit attributable to Sales – Agency 200

the agency, the home office makes Cost of Sales – Agency 120
the following closing entry: Various Expenses 50
Income Summary-Agency 30
Home Office Account Entries:
Home Office Account Entries:
Home Office Account Entries:
Home Office Account Entries:
Home Office Account Entries:
Home Office Account Entries:
 The home office writes a check to the agency

Establishment of the working fund is recorded in

Imprest Fund
the home office books.

System for
The agency will request fund replenishment
whenever the fund runs low at the end of each

Agency
fiscal year.

Upon sending the agency a check in

replenishment of fund, the office debits expenses
or other accounts for which the disbursements
from the fund were reported and credits cash.
- Accounting for an Agency -
Its’ transactions are recorded in the books of HO either at:
I. Agency Accounting records
not separate from HO
▪ HO may record transactions
of the agency in the revenue
and expense accounts used
for its own transactions.
▪ After these accounts are
closed, income summary
account reports the results of
combined operations
II. Agency Accounting records
separate from HO
▪A. maintain separate sales
revenue and expense accounts
▪ B. Beg. Inventory plus purchases
minus shipments to agency
equals GAS. Then if GAS minus
End. Inventory gives the COGS
identified with HO sales
▪ C. Adjusting Entries followed.
 PROBLEMS
”Let’s apply our learning”

HOME OFFICE AND BRANCH ACCOUNTING

AND AGENCY ACCOUNTING
 Application of
Home Office and Branch Accounting

The Problem
The following are some of the current balances in the books of the home office and its
branch on December 31,2020:

Home Office Branch Additional information:

Inventory 1/120 20,000 58,000
Per physical count, the ending inventory of the
Shipment from HO 188,500 branch is 79,700 including the goods purchased
from outsiders of 27,700 while the ending inventory
Purchases 900,000 200,000 of HO is 120,000. HO bills its branch for
merchandise shipments at 30% above cost
Shipment to Branch 145,000

AOI of branch 52,500

Sales 1,200,000 720,000

Operating Expenses 290,000 110,000

Compute the following:

A. Net income reported in the books of Home office

B. Net Income in the books of branch

C. Combined net Income

D. AOI, ending balance

E. Ending Inventory to be reported in the combined FS

Solution:
Table 1:

Cost Billed AOI

Beg. Inv. 30,000 39,000 9,000

Shipment 145,000 188,500 43,500

GAS 175,000 227,500 52,500

End. Inv. (40,000) (52,000) (12,000)

COGS 135,000 175,500 40,500

Solution:
Table 2:

Outside Suppliers Cost

Beg. Inv. 19,000
Purchases 200,000
End. Inv. (27,700)

COGS 135,000
Answer:
A. Net income reported in the books of Home office
Sales 1,200,000
COGS
BI 20,000
Shipment to branch (145,000)
Purchases 900,000
EI (120,000) (655,000)
Operating Expenses (290,000)
Net income of Home Office 255,000
Answer:

B. Net Income in the books of branch C. Combined net Income

Sales 720,000 Net Income (HO) 255,000
COGS Net Income (Branch) 243,200
(175,000)
(191,300) (366,800) AOI 40,500

Operating expenses (110,000)

Combined net income 538,700
Net income of Branch 243,200
Solution:

D. AOI, ending Balance = 12,000

E. Ending Inventory to be reported in the combined FS

ENDING INVENTORY IN COMBINED FS

End Inv. (Branch) 40,000 (at cost)
27,700 (outside supplier)
End Inv. (HO) 120,000 (H.O.)
Total ENDING INVENTORY 187,700
 Application of Agency
Accounting

The following are transactions in relation to agency of

a home office:
Requirements:
a. The transfer of P5,000 to an agency to establish a

b.
working fund
Receipt of sales orders from the agency, P50,000 1. Prepare entries on the home
c. Collection of agency accounts by the home office, office books to record the
P35,000 transactions
d. Home office disbursements representing agency
expenses, P4,500
e. Replenishment of the agency working fund upon
the receipt of expense voucher for P2,250 2. Determine the net income
f. Cost of goods sold identified with agency sales, identified with the agency
P36,000
Solution: a. Working Fund

Cash
5,000

5,000

1. Entries on the home b. Accounts Receivable 50,000

office books to record the Sales 50,000

transactions c. Cash 35,000

Accounts Receivable 35,000

d. Expenses – Agency 4,500

Cash 4,500

e. Expenses - Agency 2,250

Cash 2,250

f. COGS – Agency 36,000

Shipment to Agency 36,000

Solution: Adjusting/Closing Entries

Sales 50,000
2. Net income identified
Income Summary - Agency 50,000
with the agency
Income Summary – Agency 36,000
COGS – Agency 36,000
Income Summary - Agency
Income Summary – Agency 6,750
50,000 Expenses (d) 4,500

36,000 Expenses (e) 2,250

Income Summary – Agency 7,250
6,750
Income Summary 7,250
7,250
Net Income of the Agency
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