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Home Office and Branch Accounting: General Procedures

I. Concepts
A. Agency and Branch Distinguished
1. Merchandise
2. Customers’ Orders
3. Working Fund
4. Accounting
B. Agency Accounting Records
1. Not Separate from the Home Office
2. Separate from the Home Office
a. Sales Revenue, Expenses and COGS separate
b. Shipments and Purchases to agency (Subtracted from the HO Beginning
Inv)
C. Branch
1. Procedures observed
a. Cash and Merchandise
b. Purchase Outside
c. Shipping, billing, collections and deposits
2. Reciprocal Accounts
a. Home office current
b. Branch Current/ Investment in Branch
3. Guidelines
a. Direct Charges to Branch (Taxes and Insurance)
b. Indirect Charges
c. Home Office not selling
d. Interest and Rent on WC and PPE
4. Billing Methods for Merchandise Shipped
a. HO Cost (Original Cost)
b. Billed Price or Percentage above HO Cost (Original Cost Plus mark-up
based on cost)
c. Branch’s retail selling price (mark up based on billed price)
II. Journal Entries
A. Agency Transactions of Home Office
1. Establishment of Petty Cash Fund
2. Shipped Merchandise to agency
3. Purchase of agency equipment
4. Payment of salaries to employees of agency
5. Sales orders from agency are filled and customers are billed
6. Expenses incurred by the Agency
7. End-of-year adjustments
a. Cost of Goods Sold
b. Depreciation Expense
c. Replenishment
d. Agency samples inventory
8. Closing entries
a. Sales
b. COGS
c. Expenses
d. Agency of Income to General Income
B. Branch Transactions
1. Transfer of other assets other than merchandise by home office to branch
2. Purchase of assets by branch to be carried on home office books
3. Transfer of merchandise by home office to branch
4. Transactions of branch with outsiders
5. Returns of merchandise by branch to home office
6. Remittances by branch to home office
a. Adjustments of branch affecting outsiders
b. Branch charges submitted by home office
c. Determination of home office net income or loss o branch net income
or loss
d. Transfer of Income Summary to Retained Earnings
III. Applications
A. Preparation of Branch and Home Office Statements
B. Preparation of Combined Statements for Branch and Home Office
1. Trial Balance
2. Combined Income Statement
3. Combined Balance sheet
C. Reconciliation of Reciprocal Accounts

HO Current (Capital)
Debit Credit
● Remittances made by the branch to the ● Cash, goods or services received from HO
HO ● Profits
● Losses

Branch Current / Investment in Branch (NCA)


Debit Credit
● Cash, goods or services transferred to the ● Remittances made by the branch to the
branch HO
● Profits ● Losses

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