HOME OFFICE AND BRANCH ACCOUNTING

HO - home office
BR - branch
separate recording (separate books)
they are viewed as one
they prepare a combined F/S at the end of the period
HO will be the one to prepare the combined F/S

RECIPROCAL ACCOUNTS (counter part account on the other)

1. HO Account (HOA)
can be seen on the books of the BRANCH
is an EQUITY account
2. Investment in Branch (IIB)
can be seen on the books of the HOME OFFICE
is anASSET account

Note: HOA & IIB should always be of the SAME AMOUNT and need to be reconciled
Accounting Issues:
a. reconciliation of HOA & IIB
1. unrecorded items
2. error
b. preparation of combined F/S

3. Shipments to Branch (STB)

4. Shipments from HO (SFHO)

Note: STB & SFHO is NOT always EQUAL in amount

STB & SFHO do not need reconciliation
Accounting Issues:
HO can send inventories to BR either:
at COST
at BILLED PRICE
Preparation of COGS (modified)

RECONCILIATION OF RECIPROCAL ACCOUNTS

HOA IIB
Equity Asset
normal bal-CREDIT normal bal-DEBIT
increase - credit increase - debit
decrease - debit decrease - credit
*after the reconciliation, HOA & IIB should be balanced
WHEN DO "RECIPROCAL ACCOUNTS" INCREASE OR DECREASE?
INCREASE (IIB & HOA)
1. Asset transfer (cash/invty/PPE) from the HO to BR
2. Branch generates net income

DECREASE (IIB & HOA)

1. Asset transfer (cash/invty/PPE) from the BR to HO
2. Branch generates net loss
 JOURNAL ENTRIES
TRANSACTIONS HO BOOKS BRANCH BOO

1 Cash transfer from HO - BR IIB 50,000 CASH

(initial investment) CASH 50,000 HOA

2 Cash transfer from BR - HO CASH 20,000 HOA

(cash remittance) IIB 20,000 CASH

3 Shipment of invty from HO - BR IIB 25,000 SFHO

at COST STB 25,000 HOA

4 Shipment of invty from HO - BR IIB 31,250 SFHO

at BILLED PRICE 20% above cost STB 25,000 HOA
P25,000 x 125% = 31,250 AFOV 6,250

5 FREIGHT upon shipment (HO - BR) IIB 1,000 FREIGHT-IN

freight pre-paid CASH 1,000 HOA

6 FREIGHT upon shipment (HO - BR) NO ENTRY FREIGHT-IN

freight collect CASH

7 Shipment of invty from BR - HO STB 25,000 HOA

(return of inventory) @COST IIB 25,000 SFHO

(return of inventory) @BILLED PR STB 12,500 HOA

AFOV 3,125 SFHO
IIB 15,625

8 Sales of HO to outside customers CASH/ AR 100,000 NO ENTRY

SALES 100,000

9 Sales of BR to outside customers NO ENTRY CASH/ AR

SALES

10 Collection of A/R CASH 50,000 NO ENTRY

a) who collected the A/R? HO A/R 50,000
*will DEBIT cash
b) who owns the A/R? HO
*will CREDIT A/R

11 Collection of A/R NO ENTRY CASH

 a) who collected the A/R? BR A/R
*will DEBIT cash
b) who owns the A/R? BR
*will CREDIT A/R

12 Collection of A/R IIB 25,000 CASH

a) who collected the A/R? BR A/R 25,000 HOA
*will DEBIT cash
b) who owns the A/R? HO
*will CREDIT A/R

13 Collection of A/R CASH 15,000 HOA

a) who collected the A/R? HO IIB 15,000 A/R
*will DEBIT cash
b) who owns the A/R? BR
*will CREDIT A/R

14 Purch of HO to outside suppliers PURCH 12,000 NO ENTRY

CASH/AP 12,000

15 Purch of BR to outside suppliers NO ENTRY PURCH

CASH/AP

16 Payment of A/P A/P NO ENTRY

a) who paid the A/P? HO CASH
*will CREDIT cash
b) who owns the A/P? HO
*will DEBIT A/P

17 Payment of A/P NO ENTRY A/P

a) who paid the A/P? BR CASH
*will CREDIT cash
b) who owns the A/P? BR
*will DEBIT A/P

18 Payment of A/P A/P HOA

a) who paid the A/P? BR IIB CASH
*will CREDIT cash
b) who owns the A/P? HO
*will DEBIT A/P

19 Payment of A/P IIB A/P

a) who paid the A/P? HO CASH HOA
 *will CREDIT cash
b) who owns the A/P? BR
*will DEBIT A/P

20 Expenses incurred by the BR NO ENTRY EXPENSES

CASH

21 Expenses incurred by the HO EXPENSES NO ENTRY

CASH

22 HO allocates expenses to BR IIB EXPENSES (alloc)

CASH HOA

23 BR allocates expenses to HO EXPENSES (alloc) HOA

IIB CASH

24 Acquisition of PPE PPE NO ENTRY

a) who acquired the PPE? HO CASH
*will CREDIT cash
b) who will carry (books) the PPE? HO
*will DEBIT the PPE
*will CREDIT the ACCUM DEP
c) who will use the PPE? HO
*will DEBIT Depn Expense

25 Depreciation of PPE Depn exp NO ENTRY

Accum Dep

26 Acquisition of PPE PPE NO ENTRY

a) who acquired the PPE? HO CASH
*will CREDIT cash
b) who will carry (books) the PPE? HO
*will DEBIT the PPE
*will CREDIT the ACCUM DEP
c) who will use the PPE? BR
*will DEBIT Depn Expense

27 Depreciation of PPE IIB Depn exp

A.D HOA

28 Acquisition of PPE IIB PPE

a) who acquired the PPE? HO CASH HOA
*will CREDIT cash
 b) who will carry (books) the PPE? BR
*will DEBIT the PPE
*will CREDIT the ACCUM DEP
c) who will use the PPE? BR
*will DEBIT Depn Expense

29 Depreciation of PPE NO ENTRY Depn exp

Accum Dep

30 Acquisition of PPE
a) who acquired the PPE? HO IIB PPE
*will CREDIT cash CASH HOA
b) who will carry (books) the PPE? BR
*will DEBIT the PPE
*will CREDIT the ACCUM DEP
c) who will use the PPE? HO
*will DEBIT Depn Expense

31 Depreciation of PPE Depn exp HOA

IIB Accum Dep

32 Acquisition of PPE
a) who acquired the PPE? BR
*will CREDIT cash
b) who will carry (books) the PPE? BR
*will DEBIT the PPE
*will CREDIT the ACCUM DEP
c) who will use the PPE? BR
*will DEBIT Depn Expense

33 Depreciation of PPE

34 Acquisition of PPE
a) who acquired the PPE? BR
*will CREDIT cash
b) who will carry (books) the PPE? BR
*will DEBIT the PPE
*will CREDIT the ACCUM DEP
c) who will use the PPE? HO
*will DEBIT Depn Expense
35 Depreciation of PPE

36 Acquisition of PPE
a) who acquired the PPE? BR
*will CREDIT cash
b) who will carry (books) the PPE? HO
*will DEBIT the PPE
*will CREDIT the ACCUM DEP
c) who will use the PPE? HO
*will DEBIT Depn Expense

37 Depreciation of PPE

38 Acquisition of PPE
a) who acquired the PPE? BR
*will CREDIT cash
b) who will carry (books) the PPE? HO
*will DEBIT the PPE
*will CREDIT the ACCUM DEP
c) who will use the PPE? BR
*will DEBIT Depn Expense

39 Depreciation of PPE
BRANCH BOOKS

50,000
50,000

20,000
20,000

25,000
25,000

31,250
31,250

1,000
1,000

1,000
1,000

25,000
25,000

15,625
15,625

100,000
100,000

50,000
 50,000

25,000
25,000

15,000
15,000

10,000
10,000
XPENSES (alloc)
Accum Dep

Accum Dep
TRADITIONAL COMPUTATION OF COGS
HO BR
BI xx BI xx BI xx
P (net) xx P (net) xx P (net) xx
STB (xx) SFHO xx
TGAS xx TGAS xx TGAS xx
EI (xx) EI (xx) EI (xx)
COGS xx COGS xx COGS xx