HOME OFFICE,

AGENCY AND BRANCH

ACCOUNTING
 it is established to display merchandise

It does not stock merchandise to fill

customer’s orders
It is normally provided with a working
AGENCY fund
It has no separate accounting or
business entity
Its transactions are recorded in the
books of the home office
 It sells goods out of a stock it
maintains
It has the authority to engage in
transactions as an independent business
BRANCH
It makes sales to customers

It has a separate branch accounting system

SAMPLE ENTRIES – AGENCY TRANSACTIONS
Establishment of petty cash fund, P10,000:
Working fund – Agency 10,000
Cash 10,000

Shipped merchandise to agency for use as samples, P4,000:

Samples inventory – Agency 4,000
Shipments to Agency 4,000

Sales orders from agency:

Accounts receivable 100,000
Sales – Agency 100,00
SAMPLE ENTRIES – AGENCY TRANSACTIONS
Purchase of Agency equipment:
Equipment – Agency 20,000
Cash 20,000

Payment of salaries to employees of agency:

Salaries expense – Agency 5,000
Cash 5,000
PROBLEM
STEPHEN CLARI COMPANY (SSC) Opens an agency in Clark Oakland Pampanga. The
following transactions for the month of May 1, 2017:
• Home office sends a check for P55,000 to the agency as working fund, shipped to the agency:
Samples – 200,000 and advertising materials – 20,000.
• The Home Office fills up sales orders sent by the agency for P1,500,000 worth of merchandise.
• The cost of merchandise shipped is P800,000. The agency collected 833,000, net of 2% discount.
• The working fund is replenished for the delivery expense, maintenance and store supplies
amounting to P5,500; P3,500; and P6,000 respectively.
• The agency exhausted 50% of the samples while 60% of the advertising materials were still
unused.
HOW MUCH IS THE NET INCOME(LOSS) OF THE AGENCY FOR THE MONTH ENDED
MAY 31, 2017?
 Records are maintained at the
branch
ACCOUNTIN
G FOR
BRANCHES
The use of reciprocal accounts
Home office – uses
Branch office – “Investment in
uses “Home office” branch”
“HOME OFFICE” - ACCOUNT BY THE BRANCH

DEBITED WHEN: CREDITED WHEN:

• For remittances made by the branch • Cash, goods, or services received
to the home office from the home office
• For losses from operations • For profits resulting from branch
operations
“INVESTMENT IN BRANCH”- BY THE HOME
OFFICE

DEBITED WHEN: CREDITED WHEN:

• For cash, goods, or services • For remittances from the branch
transferred to the branch or other assets received from the
• For branch income branch
• For branch losses
BILLING METHODS FOR SHIPMENTS TO BRANCH

• 1. At home office cost (at original cost)

• 2. At billed price or a percentage above home office cost
(original cost plus mark-up based on cost)
• 3. At the branch’s retail selling price (mark-up based on
billed price)
ACCOUNTING FOR BRANCH OPERATIONS
• Assuming that on January 2019, DAVAO Company establishes its first branch in
TAGUM. Transactions of the branch during 2019 are as follows:

1. Received cash of P40,000 from the home office.

Home Office Books: Branch Books:
Investment in Branch 40,000 Cash 40,000
Cash 40,000 Home Office 40,000
ACCOUNTING FOR BRANCH OPERATIONS
• Branch purchased equipment for P20,000 cash. Depreciable assets are to be
carried on the books of the home office:
Home Office Books: Branch Books:
Equipment – Branch 20,000 Home Office 20,000
Investment in Branch 20,000 Cash 20,000

If the equipment is purchased by the home office for the branch:

Equipment – Branch 20,000 No entry required.
Cash 20,000
ACCOUNTING FOR BRANCH OPERATIONS
Received merchandise shipments from home office at the P32,000 home office cost.
Home office books: Branch books:
Investment in Branch 32,000 Shipments from HO 32,000
Shipments to Branch 32,000 Home office 32,000

If the merchandise is shipped at billed price, P40,000:

Investment in Branch 40,000 Shipments from HO 40T
Shipments to Branch (at cost) 32,000 Home Office 40T
Allowance for Overvaluation of BI 8,000
ACCOUNTING FOR BRANCH OPERATIONS
Returned P2,000 merchandise acquired from home office.
Home Office Books: Branch Books:
Shipments to Branch 2,000 Home Office 2,000
Investment in Branch 2,000 Shipments from Home Office 2,000

Remitted P30,000 to the home office.

Cash 30,000 Home Office 30,000
Investment in branch 30,000 Cash 30,000
• EXAMPLE 1 (BILLED AT COST)
CARMELA Appliance Company operates a branch in Quezon City. The following are transactions
between the home office and branch for the current year:
a. The home office sends P200,000 cash to the branch.
b. Shipments to branch are billed at cost of P78,750.
c. The Home office pays branch expense of P3,500.
d. Home Office expense of P3,375 are paid by the branch.
e. The branch returned merchandise costing P10,000 to the home office.
f. Home office acquires branch furniture for P20,500 cash. The said fixed asset is carried on
Branch books.
g. The annual depreciation on the branch furniture is 5%.
h. The branch sends a P15,000 cash remittance to home office.
DO-IT-YOURSELF
MANILA SALES decided to create a branch in Naga City at the start of 2018. The branch
operation had the following transactions during 2018:
1. Merchandise costing P350,000 and cash of P200,000 were transferred from the home office.
2. The branch purchased on account additional merchandise inventory of P400,000 from other
distributors.
3. Sales of P650,000 were made by the branch during the period. The cost of these sales was
P425,000. Cash of P600,000 was collected from sales during the year.
4. Advertising costs of P40,000, sales commissions of P65,000, and other operating costs of
P45,000 were incurred and paid by the branch.
5. The branch paid P370,000 on account to other distributors and remitted P120,000 to the
home office.
Record each of the transactions on the books of the branch and determine the net income.
EXAMPLE 2 (BILLED ABOVE COST)
The AGILA Company recently made the decision to open a branch of its business in Tarlac.
Since that time, the following transactions have occurred in connection with this new operation:
• The home office acquired P18,000 in equipment to be used (and recorded) by the branch.
• The home office paid P3,000 to lease a building for the last six months of this year. This cost
was charged to the branch.
• Inventory costing P80,000 was shipped to branch by the home office at a transfer price of
P100,000. The home office separately records all of its unrealized gains.
• The branch paid P11,000 for various operating expenses.
• The branch sold 75 percent of the inventory received, collecting P105,000 in cash.
• The branch transferred P60,000 in cash to the home office.
Prepare journal entries for both the home office and the branch to record the above transactions.