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Accounting For Branches and Combined FS
Accounting For Branches and Combined FS
ACCT 501
Objectives of this Chapter
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.
This chapter focuses on the second
system that the branch maintains its
own accounting records.
The home office may pay some taxes on
behalf of branches, and arrange for
advertising that benefits all branches.
In additional, the home office may charge
each branch interest on the capital invested
in each branch.
Weakness: attributes all gross profits
of the business to the branches.
Weakness: no gross profit assigned to
the branches and the branch’s net loss
will equal its operating expenses.
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)
Sales 80,000
Income Summary 10,500
Cost of Goods Sold 67,500
Operating Expenses 23,000
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.)
Retained earnings,
Dec. 31, 1999 (117,000) (117,000)
Net Income (from
income statement
above) (85,000) (10,000) (d) (37,500) (132,500)
Dividends declared 60,000 27,500 60,000
Retained earnings,
Dec. 31, 2000 (to
balance sheet below) 85,000 10,000 189,500
Accounting for Branches 88
Periodic Inventory System (contd.)
Example: (contd.)
Adjusted Trial Balances
Home Mason Eliminations Combined
Balance Sheet Office Branch
Dr (Cr) Dr (Cr) Dr (Cr) Dr (Cr)
(2)Sales 150,000
CGS 112,500
Operating expenses 27,500
Income Summary 10,000
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:
Investment in Mason Branch
= $67,000 (dr.)
(57,000+10,000)
Allowance for Overvaluation of
Inventories
= $10,000 (cr.) (47,500 -37,500)
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
Reconciliation of Reciprocal Ledger
Accounts
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.
$ 49,500 (dr.)
- 3,000 (cr.)
+ 2,000 (dr.)
$ 48,500 (dr.)
$ 41,500 (cr.)
- 1,000 (dr.)
+ 8,000 (cr.)
$ 48,500 (cr.)