HOME OFFICE, BRANCH & AGENCY

SALES AGENCY BRANCH

It carries stocks of inventory which is obtained from home office or
It carries displays or samples of inventory for sales purchase from outside suppliers.
promotion, but does not carry stocks of inventory
Sales orders received from customers are sent to The branch approves the credit application, delivers the goods or
the home office for credit approval, delivers the services, collects the payment and makes remittances to the home
merchandise to the customers and collects the office.
payments from customers
A working fund is provided by the home office for Branch maintains its own assets, liabilities, raises its own revenue and
agency expenses and this fund is replenished incurs its own expenses.
when exhausted.
Does not maintain its own set of accounting It maintains its own complete set of accounting records, therefore, the
records, all its transactions are recorded in the branch presents its separate financial statements for internal reporting
books of the home office except the accounting for purposes.
working fund. The financial statement of the branch is combined with the financial
statement of the home office of external reporting
ILLUSTRATION:
The following are transactions in relation to an agency of a home office:
a. The transfer of P5,000 to an agency to establish a working fund

Working Fund - Agency 5,000

Cash 5,000

b. Receipt of sales order from the agency, P50,000

Accounts receivable 50,000

Sales-agency 50,000

c. Collections of agency accounts by home office, P35,000

Cash 35,000
Accounts receivable 35,000

d. Home office disbursements representing agency expenses, P4,500.

Expenses-Agency 4,500
Cash 4,500

e. Replenishment of the agency working fund upon receipt of expense vouchers for P2,250.

Expenses-Agency 2,250
Cash 2,250

d. Cost of goods sold identified with agency sales, P36,000.

Cost of goods sold-Agency 36,000

Inventory-Agency 36,000

Sales 50,000
Cost of Goods Sold 36,000
Gross Profit 14,000
Expenses 6,750
Net Income 7,250
ACCOUNTING FOR BRANCH OPERATIONS
> Branch records its transactions in its own accounting books which is separate from the records of the home office.
> The branch and home office presents their separate financial statements, which will be combined later on as a
single set of financial statements for external reporting purposes.
> The home office and branch records its own transactions with outside entities in its own accounting records in the usual
manner.
> Transactions between home office and branch are recorded using the reciprocal accounts (interoffice accounts)
Balance Sheet:
Home Office Books:
Investment in Branch or Branch Current account. It is an asset account with a debit normal balance.
Branch Books:
Home Office account. It is a capital account with credit normal balance.

Income Statement:
Home Office Books:
Shipment to Branch. It is a nominal account deducted in the computation of total goods available for sale
Branch Books:
Shipment from Home Office. It is a nominal account added in the computation of goods available for sale

> The reciprocal accounts are presented in the separate financial statements of the home office and the branch.
> Reciprocal accounts are eliminated when presenting the combined financial statements .

Home Office Books:

Investment in Branch Account
Assets transferred to branch Assets received from branch
Profit earned by branch Loss incurred by branch
Expenses of branch paid by home office Expenses of home office paid by branch
Liabilities of branch paid by home office Liabilities of home office paid by the branch

Branch Books:
Home Office Account
Assets transferred to home office Assets received from home office
 HOME OFFICE
a. Transfer of cash from home office Investment in Branch xxx
to branch Cash xxx

b. Transfer of cash from branch to home Cash xxx

office Investment in Branch xxx

c. Transfer of inventory by home to branch Investment in Branch xxx

Shipments to branch xxx

d. Return of inventory by branch to home Shipments to branch xxx

office Investment in Branch xxx

e. Allocation of expenses paid by the home Investment in Branch xxx

office Expenses xxx

f. Transfer of equipment by home office to Equipment-branch xxx

branch. The home office will still record Equipment xxx
the equipment.

g. Equipment purchased by home office Equipment-branch xxx

to be used by the branch. The home office Cash xxx
will record the equipment.

h. Equipment puchased by home to be used Investment in branch xxx

by the branch. The branch will record the Cash xxx
equipment.

i. Equipment puchased by branch to be Equipment xxx

used by the home office. The home office Investment in Branch xxx
will record the equipment.
 BRANCH
Cash xxx
Home Office xxx

Home Office xxx

Cash xxx

Shipment from Home Office xxx

Home Office xxx

Home Office xxx

Shipment from Home Office xxx

Expenses xxx
Home Office xxx

Memo entry

Memo entry

Equipment xxx
Home Office xxx

Home Office xxx

Cash xxx
 Loss of the branch Profit of the branch
Expenses of home office paid by the branch Expenses of branch paid by home office
Liabilities of home office paid by branch Liabilities of branch by home office

CONSOLIDATED FINANCIAL STATEMENTS

> Eliminate of reciprocal accounts.
> Combine similar items of assets, liabilities, revenues and expense accounts.

RECONCILIATION OF RECIPROCAL ACCOUNTS

Reasons of unequal balance of reciprocal accounts:
1. Clerical Errors - ex. Transposition errors, wrong posting or double posting of accounts.
2. Timing of Recording - ex. Remittances and shipments in transit and unrecorded debit and credit memo

Unrecorded Debit and Credit Memo

A. If the memo is issued by the Home office:
Debit Memo:
Investment in Branch account - Debited
Home Office account - Credited

Credit Memo:
Investment in Branch account - Credited
Home Office account - Debited

B. If the memo is issued by the Branch:

Debit Memo:
Home Office account - Debited
Investment in Branch account - Credited

Credit Memo:
Home Office account - Credited
Investment in Branch account - Debited
j. Equipment purchased by branch to be Memo Entry
used by the home office. The branch will
record the equipment.

k. Accounts receivable of branch collected Cash xxx

by the home office Investment in Branch xxx

l. Accounts receivable of home office Investment in Branch xxx

collected by the branch Accounts Receivable xxx

m. Accounts payable of branch paid by the Investment in Branch xxx

home office Cash xxx

n. Accounts payable of home office paid Accounts Payable xxx

by the branch Investment in Branch xxx

o. Expenses of Home office paid by the Expenses xxx

branch Investment in Branch xxx

p. Expenses of branch paid by home Investment in Branch xxx

office Cash xxx
Equipment -HO xxx
Cash xxx

Home Office xxx

Accounts Receivable xxx

Cash xxx
Home Office xxx

Accounts Payable xxx

Home Office xxx

Home Office xxx

Cash xxx

Home Office xxx

Cash xxx

Expenses xxx
Home Office xxx
ILLUSTRATION:
On January 1, 20x4, a branch sales office is established in Tagaytay. The home office sent the following
assets to branch:
a. Cash, P1, 500
b. Merchandise, cost P10,200.
c. Store furniture and fixtures previously used by the home office - cost P3,000;age 2 1/2 years; depreciation
rate used in the past, 10% a year. The cost of shipment and installation, P900 is paid by the branch. The cost
is to br written down off over the remaining life of the asset. The equipment accounts are to be carried
on the bookds of the home office.
d. Accounts receivable, P2,600. Accounts arose from home office sales to customer in Miami. The branch is
authorized to take over the accounts and make collections.

Home Office and branch transactions with outsiders during January were:
Home Office Branch
Sales on account 34,600 6,200
Collections on own accounts 40,000 2,600
Purchases on account 31,600 3,000
Payments on account 36,200 1,450
Payment of expenses (including accruals as of Jan 1) 9,200 1,250

The following took place with respect to accounts received by the branch from the home office: collections
of P1,600 were made; accounts of P150 were uncollectible and were written off; it is believed that remaining
accounts of P850 are collectible.

Interoffice transactions during January were:

Merchandise shipment to branch, cost, P1250
Cash remittance to home office, P1,000

The following information is to be recorded on January 31:

a. Merchandise costing P600 was shipped by the home office to the branch in January 31; this merchandise is in
transit and will not reach the branch until Feb 2 (this shipment is not included in transfers previously mentioned)
b. Expenses that are paid by the home during the month and that are chargeable to the branch total P475.
 HOME OFFICE BOOKS BRANCH BOOKS
Investment in branch 1,500 Cash 1,500
Cash 1,500 Home Office 1,500

Investment in branch 10,200 Shipment from home office 10,200

Shipment to branch 10,200 Home Office 10,200

SFF- Branch 3,000 No Entry

Store Furniture & Fixtures 3,000

Acc. Depreciation- SFF 750 No Entry

Acc Depreciation SFF-Branch 750

SFF-Branch 900 Home Office 900

Investment in Branch 900 Cash 900

Investment in Branch 2,600 Accounts receivable 2,600

Accounts receivable 2,600 Home Office 2,600

Accounts receivable 34,600 Accounts receivable 6,200

Sales 34,600 Sales 6,200

Cash 40,000 Cash 2,600

Accounts receivable 40,000 Accounts receivable 2,600

Purchases 31,600 Purchases 3,000

Accounts Payable 31,600 Accounts Payable 3,000

Accounts payable 36,200 Accounts payable 1,450

Cash 36,200 Cash 1,450
 EAGLE CO. EAGLE CO.
Branch Income Statement Branch Statement of Financial Position
For the month of Jan 20x4 as of Jan 31, 20x4

Sales 6,200 ASSETS

Cost of Sales Cash 1,100
Purchases 3,000 Accounts receivable 4,450
Shipment from home office 12,050 Merchandise Inventory 10,400
Good Available for Sale 15,050 Total 15,950
Less: Inventory, end 10,400 4,650
Gross Profit 1,550 LIABILITIES
Expenses 2,110 Accounts payable 1,550
Branch Net Loss (560) Accrued expense 350
Home Office 14,050
Total 15,950

EAGLE CO. EAGLE CO.

Home Office Income Statement Home Office Statement of Financial Position
For the month of Jan 20x4 as of Jan 31, 20x4

Sales 34,600 ASSETS

Cost of Sales Cash 9,100
Inventory, beg 46,000 Accounts receivable 34,000
Purchases 31,600 Allow for Doubtful Accounts (1,050) 32,950
Goods Available for Sale 77,600 Merchandise Inventory 44,500
Shipment to branch 12,050 Furniture & Fixtures 12,000
Goods available for own sale 65,550 Acc. Depreciation (3,950) 8,050
Less: Inventory, end 44,500 21,050 Furniture & Fixtures-Branch 3,900
Gross Profit 13,550 Acc. Depreciation-Branch (785) 3,115
Expenses 9,325 Investment in Branch 14,050
Net Income from own operations 4,225 Total 111,765
(These are included in the P9,200 amount)
c. Depreciation on furniture and fixtures is recorded at the rate of 10% a year.
d. Merchandise inventories, excluding merchandise in transit, are: home office, P44,500; branch P9,800.
e. Accrued expenses are: home office, P750; branch, P350.
Expenses 8,950 Expenses 1,250
Accrued Expense 250 Cash 1,250
Cash 9,200

Cash 1,600
Accounts receivable 1,600

Allow for Doubtful Accounts 150 Home office 150

Investment in branch 150 Accounts receivable 150

Investment in branch 1,250 Shipment from home office 1,250

Shipment to branch 1,250 Home Office 1,250

Cash 1,000 Home Office 1,000

Investment in branch 1,000 Cash 1,000

Investment in branch 600 Shipment from home office 600

Shipment to branch 600 Home Office 600

Investment in branch 475 Expenses 475

Expenses 475 Home Office 475

Investment in branch 35 Expenses 35

Acc Depreciation SFF-Branch 35 Home Office 35

Expense 100
Acc. Depreciation- SFF 100

Expense 750 Expenses 350

Accrued Expense 750 Accrued Expense 350

Closing Entries:
Sales 34,600 Sales 6,200
 LIABILITIES & SHAREHOLDERS' EQUITY
Accounts payable 29,150
Accrued expense 750 29,900
Common Stock 50,000
Retained Earnings 31,865 81,865
Total 111,765

EAGLE CO. EAGLE CO.

Combined Income Statement Combined Statement of Financial Position
For the month of Jan 20x4 as of Jan 31, 20x4

Sales 40,800 ASSETS

Cost of Sales Cash 10,200
Inventory, beg 46,000 Accounts receivable 38,450
Purchases 34,600 Allow for Doubtful Accounts (1,050) 37,400
Goods Available for Sale 80,600 Merchandise Inventory 54,900
Less: Inventory, end 54,900 25,700 Furniture & Fixtures 15,900
Gross Profit 15,100 Acc. Depreciation (4,735) 11,165
Expenses 11,435 Total 113,665
Net Income 3,665
LIABILITIES & SHAREHOLDERS' EQUITY
Accounts payable 30,700
Accrued expense 1,100 31,800
Common Stock 50,000
Retained Earnings 31,865 81,865
Total 113,665
Merchandise inventory, end 44,500 Merchandise inventory, end 10,400
Shipment to branch 12,050 Income summary 560
Expenses 9,325 Expenses 2,110
Purchases 31,600 Purchases 3,000
Merchandise inventory, beg 46,000 Shipment from home office 12,050
Income summary 4,225

Branch income summary 560

Investment in branch 560 Home Office 560
Income Summary 560
Income summary 560
Branch income summary 560

Income summary 3,665

Retained earnings 3,665
On December 31 the branch account on the home office books of the Ward Co. Entry Made
shows a balance of P8,400 and the home office account on the branch books shows Home Office
a balance of P9,735. The following data are determined in accounting for the difference:
Investment in Branch
a. Merchandise billed at P615 was shipped by the home office to the branch on Shipment to Branch
December 28. The merchandise is in transit and has not been recognized on the
books of the branch.

b. The branch collected a home office account receivable of P2,500, but failed to None
notify the home office of this collection.

c. The home office recorded incorrectly the branch net income for November of Investment in branch
P1,125. The branch reported net income of P1,215. Branch Income

d. The home office was charged P640 when the branch returned merchandise None
to the home office on December 31. The merchandise is in transit.
 Entry Made Correcting
Debit Credit Debit Credit Debit Credit
Branch Entry

615 None Shipment from Home Office 615

615 Home Office 615

Cash 2,500 Investment in Branch 2,500

Home Office 2,500 Accounts Receivable 2,500

1,125 Income Summary 1,215 Investment in branch 90

1,125 Home Office 1,215 Branch Income 90

Home Office 640 Shipment to Branch 640

Shipment from Home Office 640 Investment in branch 640
 HOME OFFICE BRANCH
Unadjusted Balance 8,400 9,735
Unrecorded by branch 615
Unrecorded by home office 2,500
Incorrect take up by home office 90
Unrecorded by home office (640)
Adjusted balances 10,350 10,350
Comparison between the interoffice account of the Wash Wholesale Company with its suburban branch
and the corresponding account carried on the latter's books shows the following discrepancies at the close
of business on Sept 30, 20x2:

a. a debit of P870 (Office Furniture) on the home office books is recorded by the branch as P780.
b. A credit for P300 (Merchandise Allowances) by the home office is recorded by the branch as P350.
c. The home office charges the branch P325 for interest on open account which the branch fails to
take up in full; instead, the branch send at the home office an incorrect adjusting memo, reducing the
charge by P75, and sets up a liability for the net amount.
d. A labor charge by the home office, P433, is recorded twice by the branch.
e. A charge of P785 for freight on merchandise is made by the home office, but the amount is recorded
by the branch as P78.50
f. The branch incorrectly sends the home office a debit note for P293, representing its proportion of a
bill for truck repairs; the home office does not record it.
g. The home office received P475 from the sale of a truck, which is erroneously credits to the branch;
the branch does not charge the home office therewith
h. The branch accidentally receives a copy of the home office entry dated October 10, 20x2, correcting
item (g), and records a credit in favor of the home office as of September 30, 20x2

The balance of branch account on the home office books shows P131,690 receivable from the branch at
September 30, 20x2. The interoffice accounts were in balance at the beginning of the year.
 Investment in Branch Home Office
Unadjusted balance 131,690.00 131,858.50
Incorrect take up by branch
Office Furniture 90.00
Merchandise Allowance 50.00
Interest expense 75.00
Labor charges (433.00)
Freight in 706.50
Truck repairs 293.00
Sale of truck (475.00)
Incorrect take up by home office
Sale of truck 475.00
Adjusted Balance 132,165.00 132,165.00
How much is the net income to be reported by the sales agency for the year ended Dec

Net Sales 396,000

Cost of Sales 198,000
Gross Profit 198,000
Meal 4,000
Rent 9,000
Transportation 2,000
Samples 26,000
Net Income 157,000
ar ended Dec 31, 2022?
What is the adjusted balance of the home office account at the end of the current year?
What is the unadjusted balance of branch account at the end of the current year?
Investment in Branch Home Office
380,000 500,000
(40,000)
20,000
(60,000)
(80,000)
120,000
(60,000)
100,000

440,000 440,000
The unadjusted balance of the home office account in the books of the branch at December 31, 2022 is
 Entry Made Shoule be
Debit Credit
Entry
AP 47,000 HO
Cash 47,000 Cash

Cash 4,700 Cash

Inv 4,700 Inv

Inv 32,000 Ship to Br

Ship to Br 32,000 Inv

Exp 16,200 Exp

HO 16,200 HO

Exp 7,590 Exp

HO 7,590 HO

Furniture 1,700 Furniture

HO 1,700 HO

Freight in 8,350 Freight in

HO 8,350 HO

HO 11,800 HO
 Correcting
Debit Credit Debit Credit
Entry
47,000 HO 47,000
47,000 AP 47,000

47,000 Cash 42,300

47,000 Inv 42,300

32,000 Ship to Br 64,000

32,000 Inv 64,000

10,800 HO 5,400
10,800 Exp 5,400

9,750 Exp 2,160

9,750 HO 2,160

17,500 Furniture 15,800

17,500 HO 15,800

5,830 HO 2,520
5,830 Freight in 2,520

5,900 Discount 5,900

 Discount 11,800 Discount

Ship to Br,
Inv

Inv 45,625 Inv

AR 45,625 AR
 5,900 HO 5,900

7,000 Ship to Br, 7,000

7,000 Inv 7,000

54,265 Inv 8,640

54,265 AR 8,640