Professional Documents
Culture Documents
Accounting
Sales Agency vs. Branch
Periodic System:
COGS - Sales Agency
Shipments of Merchandise Sales Agency
6
Sales Agency: Illustration
14
Reciprocal Ledger Accounts
Home Office Books
16
Reciprocal Ledger Accounts
17
Illustration
Smaldino opened a new branch called
Mason branch.
Assume that Smaldino Company bills
merchandise to Mason Branch at home office
cost and that Mason Branch maintains
complete accounting records and prepares
financial statements.
Both the home office and the branch use the
perpetual inventory system. Generally,
equipment used at the branch is carried in the
home office records unless specifically stated.
Expenses, such as advertising and insurance,
incurred by the home office on behalf of the
branch, are billed to the branch.
18
Illustration
Cash of $1,000 was forwarded by the
home office to Mason Branch.
Home Office Journal Mason Branch Journal
Entries Entries
Investment in Mason Cash 1,000
Branch 1,000 Home Office 1,000
Cash 1,000
19
Shipment of Merchandise
21
Inventories
Purchase of branch from outside supplier
Ex. Bacolod Branch purchased P100,000
worth of merchandise from a local supplier, on
account.
Shipments of Merchandise to Branch
Ex. Makati head office shipped merchandise
costing P250,000 to its Davao Branch. These
merchandise were billed at costs and freight
paid by HO amounted to P25,000.
Acquisition of Fixed Assets
Used in Branch
Transactions recorded by a
branch should include all
controllable expenses and
revenue initiated by the branch
If the branch manager has
responsibility over all branch
assets, liabilities, revenue and
expenses, the branch
accounting records should
reflect this responsibility.
23
Acquisition of Fixed
Assets Used in Branch
Expenses such as depreciation often are not
subject to control by a branch manager.
Branch plant assets and the related
depreciation ledger accounts are generally
maintained by the home office (would apply
if the problem is silent).
The policy adopted by the company would
depend on where the acquisition of plant
assets are recorded and who does the
actual acquisition.
24
Acquisition of Fixed Assets
Used in Branch
If a fixed asset is acquired by the home office
for a branchs usage and the accounting
record for the fixed asset is maintained by the
home office, the accounting treatments are:
25
Acquisition of Fixed
Assets Used in Branch
If a plant asset is acquired by a branch for its
usage but the accounting record for this plant
asset is maintained by the home office, the
accounting treatments are:
26
Acquisition of Fixed Assets
Used in Branch
27
Illustration
None Accounts
Receivable 80,000
Sales 80,000
Cost of Goods
Sold 45,000
Inventories 45,000
29
Illustration
30
Start-Up Costs
31
Expenses Incurred By Home
Office And Allocated To Branches
32
Expenses Incurred By Home
Office And Allocated To
Branches
The home office usually acquires
insurance, pays property and other
taxes, and does advertising that
benefits all branches.
Home Office Journal Branch Journal Entries
Entries
Investment in Branch Expense Account
Expense Account Home Office
33
Expenses Incurred By Home Office
And Allocated To Branches
34
Illustration
36
Illustration
38
Recognition of Branch
Income or Loss
39
Comprehensive Illustration
41
Separate Financial Statements
for Branch & Home Office
Separate financial statements also
may be prepared for the home office
so that the results of its operations and
its financial position can be
appraised.
42
Combined Financial Statements
43
Combined Financial Statements
The reciprocal ledger accounts are
eliminated because they have no
significance when the branch and home
office report as a single entity.
The balance of the Home Office account is
offset against the balance of the Investment
in Branch account;
Shipments to Branch account is eliminated
against the Shipments from Home Office
(periodic).
In addition, any receivables and payables
between the home office and the branch (or
between branches) are eliminated.
44
Combined Financial
Statements
Operating results of the enterprise are
shown by an income statement in
which the revenue and expenses of the
branches are combined with
corresponding revenue and expenses
for the home office.
Intra-company profits of losses are
eliminated (in the case of inventory sold
with mark-up).
45
Working Paper for
Combined Financial Statements
46
1st Semester 2013-2014 Prepared by: Rona Corda-Prado 47
Reconciliation of
Reciprocal Ledger Accounts
49
The End
50