Home Office

and Branch
Relationship

Ch 1
 Agency and Branch Office
Agency :
An organization that merely takes orders for
goods and that operates under the direct
supervision of officers of the HO.

Branch :
An Organization that sells goods out of stock
that in maintains and that possesses the
authority to engage in transactions as
independent business unit.
Accounting for an Agency
Illustration
1. Receipt of working fund $1.000 from HO.
2. Orders for goods submitted by agency $5.000.
3. Collections $3.000 by HO on agency sales.
4. Disbursements by HO for agency:
- Salaries $250
- Office $200
- Advertising $450
5. Voucher expenses from agency to HO
- Salaries $350
- Supplies $200
 HO books
Working Fund – Agency A 1.000
Cash 1.000

A/R 5.000
Sales – Agency A 5.000

Cash 3.000
A/R 3.000

Salaries – Agency A 250

Office Rent – Agency A 200
Advertising Supplies – Agency A 450
Cash 900

Salaries – Agency A 350

Others Exp. – Agency A 200
Cash 550
 Adjustment Entries :
Illustration :
COGS identified with Agency $ 3.500.
Advertising on hand 2/3 of amount received.
COGS-Agency A 3.500
Merchandise Shipment-Agency A 3.500
Advertising Exp.-Agency A 150
Supplies-Agency A 150
Sales-Agency A 5.000
Income-Agency A 5.000
Income-Agency A 4.650
COGS-Agency A 3.500
Salaries-Agency A 600
Office Rent-Agency A 200
Advertising Supplies-Agency A 150
Others Exp-Agency A 200
Income-Agency A 350
Income Summary 350
 A Sales Agency
Income Statement

Sales 5.000
COGS (3.500)
1.500
Expenses :
Salaries 600
Rent 200
Advertising 150
Others 200
(1.150)
Net Income 350
 Exercise
1. Receipt of working fund $500 from HO.
2. Orders for goods submitted by agency $5.000.
3. Collections $ 3.500 by HO on agency sales.
4. Disbursements $450 by HO for agency.
5. Voucher exp $225 from agency to HO.
6. COGS $3.600.
Accounting For a Branch
Illustration on Oct 1-31 period
1. On Oct 1, 2016, Branch receipt cash $6.000 and Merchandise
$12.000 billing at cost from HO,
2. Purchase of Furniture and Fixtures $3.000 in cash by branch to be
carried on HO.
3. Sales $ 6.500 and Collections $ 3.500 by branch in Oct 2016.
4. Payment of :
- Salaries $ 400
- Office $ 200
- Others $ 150
5. Remittance to HO $ 2.000
6. Branch charges submitted by HO :
- Insurance $ 35
- Depreciation $ 50
- Taxes $ 25
- Advertising $ 300
- Interest 6% from investment $18.000
 HO books
Branch 6.000
Cash 6.000
Branch 12.000
Shipment to Branch 12.000
Furniture & Fixture Branch 3.000
Branch 3.000
Cash 2.000
Branch 2.000
Branch 500
Prepaid Insurance 35
Acc. Depreciation 50
Taxes Payable 25
Advertising Expenses 300
Interest Income 90
 Branch books
Cash 6.000
HO 6.000
Shipment from HO 12.000
HO 12.000
HO 3.000
Cash 3.000
A/R 6.500
Sales 6.500
Cash 3.500
A/R 3.500
Salaries 400
Office Rent 200
Others Expenses 150
Cash 750
HO 2.000
Cash 2.000
 Branch books

Insurance 35
Depreciation 50
Taxes 25
Advertising Exp 300
Interest Exp 90
HO 500

Illustration :

Merchandise Inventory in Oct 31,…..$ 8.400

 Adjustment Entries
Illustration : Branch Books
Merchandise Inventory in Oct 31,…..$ 8.400.

Merchandise Inventory 8.400

Income Summary 8.400
Sales 6.500
Income Summary 6.500
Income Summary 13.250
Shipment from HO 12.000
Salaries 400
Office Rent 200
Others Exp 150
Insurance 35
Depreciation 50
Taxes 25
Advertising 300
Interest Exp 90
Income Summary 1.650
HO 1.650
 Adjustment Entries
HO Books

Illustration :
Merchandise Inventory in Oct 31,….. $ 8.400.

Branch 1.650
Branch Income 1650
Branch Income 1.650
Income Summary 1.650
Balance She e t
Oct 31, 2016
HO Branch

As s e ts
Cash 6.250 3.750
A/R 18.000 3.000
Inventory 30.000 8.400
Prepaid Insurance 150
Branch 15.150
Furniture & Fixture - HO 14.000
Furniture & Fixture - Branch 3.000
Total 86.550 15.150
Liabilitie s & Capital
Acc. Depr. - HO 9.100
- Branch 50
A/P 23.300
Taxation 200
HO 15.150
C/S 25.000
R/E 28.900
Total 86.550 15.150
 Elimination Entries
◼ Cash : 3.750
◼ A/R : 3.000
◼ Merchandise : 8.400
15.150
Entries
HO 15.150
Branch 15.150
Shipment to Branch 12.000
Shipment from HO 12.000
Interest Exp to Branch 90
Interest Exp from HO 90
Illustration
Balance Sheet
Oct 31, 2016
HO Branch Elim ination Com bined
Dr Cr
Assets
Cash 6.250 3.750 10.000
A/R 18.000 3.000 21.000
Inventory 30.000 8.400 38.400
Prepaid Insurance 150 150
Branch 15.150 15.150 -
Furniture & Fixture - HO 14.000 14.000
Furniture & Fixture - Branch 3.000 3.000
Total 86.550 15.150 86.550
Liabilities & Capital
Acc. Depr. - HO 9.100 9.100
- Branch 50 50
A/P 23.300 23.300
Taxation 200 200
HO 15.150 15.150 -
C/S 25.000 25.000
R/E 28.900 28.900
Total 86.550 15.150 15.150 - 86.550
 Incom e Statem ent
Oct 31, 2016
HO Branch Elim ination Com bined
Dr Cr
Sales 24.000 6.500 30.500
COGS :
- Beginning Inventory 38.000 38.000
- Purchase 16.000 16.000
- Shipment from HO - 12.000 12.000 -
54.000 54.000
- Less shipment to Branch 12.000 12.000 -
Inventory available 42.000 12.000 54.000
- Ending Inventory 30.000 8.400 38.400
Cost of Good Sold 12.000 3.600 15.600
Gross profit 12.000 2.900 14.900
Expenses
- Salaries 1.900 400 2.300
- Rent 1.000 200 1.200
- Advertising 800 300 1.100
- Depr. Exp 400 50 450
- Insurance 250 35 285
- Tax 150 25 175
- Others 1.450 150 1.600
Operating Incom e 6.050 1.740 7.790
Interest Income 90 90
Interest Exp. 90 90
Net Incom e 6.140 1.650 7.790
 Adjustment FOR RECIPROCAL ACCOUNT

CONSIDERED TO RECONCILE :

DEBITS OR CREDIT WITHOUT CORRESPONDING BETWEEN HO

AND BRANCH
ON HO BOOKS
30-Nop Balance 10.500 17-Des Cash Receipt 1.500
28-Des Merchandise 3.000 22-Des Collection of A/R 750
Shipped to Branch

ON BRANCH C BOOKS
15-Des Cash to HO 1.500 30-Nop Balance 10.500
30-Des Cash to HO 500 26-Des Correction of net 200
Income
Shipment from HO 3.000
HO 3.000
HO 750
A/R 750
Cash in transit 500
Branch 500
Branch 200
R/E 200
Table of reciprocal account HO BRANCH
BOOKS BOOKS
Branch HO
Account Account
Balance at Beginning
Adjustments : 11.250 8.700
Merchandise Shipped to Branch 3.000
Understatement of Branch C Net Income 200
11.450 11.700
Deduction :
Transfer of cash to HO (500) -
Collection of Branch C (750)
Ending Balance 10.950 10.950
Finish