Accounting for Home Office,

Branches and Agencies

(Simplified Approach in Tag-Lish)

Prepared by:

Little Boy P. Aspero

Academic Committee Member JPIA-UMak

Alam mo yung BRANCH ???

Siyempre yun yung sanga ng isang
puno,diba? Tsktsktsk!!! But on a
serious note, ang puno ay very
relatable po yan dito sa discussion
natin ngayon. Ang puno bilang siya
yung HOME OFFICE while ang mga
sanga naman nito represent the
BRANCHES.

SM
Megamall

SM Mall
of Asia

SMART
Communications
Ayala, Makati City
(HOME OFFICE)

Trinoma
Branch

SM North
EDSA

In this chapter, ang pag-aaralan po natin dito is kung

paano yung accounting natin sa mga transactions ng
HOME OFFICE at ng BRANCHES ng isang company.
Here, I will not discuss extensively about the
accounting for agencies kasi hindi naman po
masyadong complicated at limited lamang po ang
scope of activities ng isang agency unlike branches at
parang utus-utusan lang daw yang agency na yan (
according to Prof. Tina). Hahaha! Okidoks po ba yun?
Pero dont worry Im giving you the differences
between AGENCY and BRANCH. But before that, sa
palagay niyo po, bakit kailangang mag put up ng mga
branches ang isang kumpanya? hmmm

AGENCY

It does not carry stocks of merchandise.

ONLY samples or displays for sales
promotion purposes lamang.

BRANCH
It carries its own stocks of merchandise
or siya mismo may hawak ng mga ito
which are either delivered by the home
office or binili niya mismo sa third
parties or sa suppliers

Sales orders are sent to the HOME Si branch na mismo ang nagOFFICE and si home office lang
aapprove ng mga sales orders ng
yung nag-aapprove ng mga sales
mga customers.
orders ng customers.

After ma approve yung mga sales

orders, si home office din yung nag dedeliver ng mga goods or merchandise sa
mga customers (the usual sale of
merchandise) and si home office din
yung in-charge sa collections ng
accounts.

Si branch itself nag di-deliver ng mga

merchandise to customers (the usual
sale) and it collects also the receivables
and then yung cash collections ay nireremit sa home office.

Only a WORKING FUND for the

expenses ng agency is provided by the
home office. This is similar to accounting
for PETTY CASH FUND using
IMPREST FUND SYTEM.
( Remember niyo pa yung sa Financial
Accounting 1 natin dati kay Sir Val?
Refer na lang dun sa book ni Atty. Valix
kung ano entries to replenish the fund
when it runs low or is exhausted. )

Same sila ni agency which is may

working fund din ang branch that is
replenished when exhausted. Refer to
accounting for Petty Cash sa book na
Financial Accounting 1 ni Atty. Valix )

It does not maintain a separate It maintains its own books,

set of books, meaning it doesnt
meaning it records its own
record journal entries. ONLY
transactions. Parang considered
the home office records in its
as a separate entity ang branch
books the transactions affecting
dito as far as recording is
the agency.
concerned.

TAKE NOTE OF THESE:

Sa paggawa po ng journal entries regarding agency
transactions, mas practicable po if we are going to
account them SEPARATELY instead of merging it with the
home office para atleast mas madaling ma-assess or mamonitor ng home office ang performance ng isang
specific agency kung kumikita ba ito o hindi. Kasi kapag
hindi naman maganda ang performance ng isang agency
na yan, pwede ng tanggalin or e-stop na ang operation
para hindi lugi ang kumpanya. Di ba? Lets say for
example, si SMART Communications may tatlo (3) siyang
agencies namely Cebu Agency, Ilo-Ilo Agency and Aklan
Agency.

Lets say si Cebu Agency ay medyo weak ang kanyang

performance, pwedeng e-stop na ng SMART ang
operations niya sa Cebu Agency. Sauce! Nalululugi na
pala eh, tanggalin na yan! hahaha. So in making journal
entries, pano po natin sila e-aaccount separately?
Simple lang, by attaching the name or place of the
agency sa isang specific account. LAGI PO NATING
TATANDAAN NA SA MGA TRANSACTIONS NG AGENCY,
SI HOME OFFICE LAMANG PO ANG NAG MEMAINTAIN NG LIBRO OR RECORDS OR SIYA LAMANG
PO ANG GUMAGAWA NG JOURNAL ENTRIES AT HINDI
ANG AGENCY. Ok po ba?

Summary of Journal Entries for Agency Transactions:

Agency Transactions

Home Office Books

Establishment of a working fund for the agency by the home Working Fund Cebu Agency xx
office
Cash
xx
Shipment of samples to agency

Samples - Cebu Agency

xx
Shipments to Cebu Agency xx

Receipt of sales orders from agency and made deliveries

Accounts Receivable-Cebu Agency xx

Sales-Cebu Agency
xx

Cost of sales identified with agency sales

Cost of Sales-Cebu Agency

xx
Shipments to Cebu Agency xx

Replenishment of agency working fund based on submitted Expenses-Cebu Agency

paid vouchers.
Cash
Payment by home office of agency expenses

xx
xx

Expenses- Cebu Agency xx

Cash
xx

Agency samples on hand (ung original cost ng samples less ung Expenses- Cebu Agency xx
natitira equal
Cash
xx
Closing of agency revenue and expenses

Closing of agency income to Income Summary

Sales-Cebu Agency xx
Cost of Sales-Cebu Agency
Expenses-Cebu Agency
Cebu Agency Income
Cebu Agency Income xx
Income Summary
xx

xx
xx
xx

Napansin niyo po yung mga accounts doon na

may naka-attach na name ng agency which is
Cebu Agency? Thats what I meant of
ACCOUNTED FOR SEPARATELY. For the purpose
na para malaman ng home office ang
performance ng Cebu Agency. Pero lagi lang
tandaan yung sinasabi ko na si HOME OFFICE
lang ang gumagawa ng journal entries at HINDI
si agency. IT DOES NOT MAINTAIN ITS OWN SET
OF BOOKS, meaning hindi siya nag re-record ng
mga transactions sa libro. (refer to the first table
on page 1 regarding the differences between
agency and branch)

Lets try to answer this simple exercise regarding agency transactions.

Exercise # 1 (Prepare the journal entries in the HOME OFFICE Books.)

The Magic89.9 Company established an agency in Makati City and the agency
revenues and expenses are recorded using specific accounts (accounted for
separately).
1.
2.
3.
4.
5.

Merchandise samples shipped to Makati Agency, P20,000

P15,000 working fund is given to the agency.
Agency sales orders filled up by the home office, P60,000 on account.
Cost of shipment to agency customers, P45,000
Working fund replenished for the following agency expenses:
Rent
P2,000
Supplies
1,000
Salaries
3,000
Utilities
1,000
Total
P7,000

Solutions to Exercise # 1
Samples Makati Agency
20,000
Shipments to Makati Agency
20,000
Working Fund Makati Agency 15,000
Cash
15,000
Accounts Receivable Makati Agency 60,000
Sales Makati Agency
60,000
Cost of Sales Makati Agency 45,000
Shipments to Makati Agency
45,000
Rent Expense
2,000
Supplies Expense 1,000
Salaries Expense 3,000
Utilities Expense 1,000
Cash
7,000
Sales-Makati Agency
60,000
Cost of Sales Makati Agency
45,000
Rent Expense
2,000
Supplies Expense
1,000
Salaries Expense
3,000
Utilities Expense
1,000
Makati Agency Income
8,000
Makati Agency Income
8,000
Income and Expense Summary
8,000

Ano kamusta po? Ok na po ba tayo sa

accounting for agency? Sige po,
kung okidoks na, punta na tayo
ngayon sa accounting for branches.
No need na po to discuss yung
dictionary meaning (denotation) ng
salitang branch dito. Practically, alam
naman po natin kung ano ito and Ive
already discussed it earlier.

Dito po sa branch accounting, kung titignan natin,

considered ang branch as a separate business entity
as far as recording of transactions is concerned
dahil sa itong mga branches na to ay may mga
sariling libro na mini-maintain. As earlier
mentioned, ang branch ang nagre-record ng
kanyang mga transactions whether may kinalaman
si home office or wala or transactions with other
external parties/third parties. However, always
remember po na for external reporting purposes,
considered as a single business entity ang home
office and branch.

Well, anyway in the first place and in reality, isang

company lang naman talaga sila kung tutuusin.
Later on, malalaman po natin kung bakit
considered as one ang home office at ang branch
for external reporting purposes sa kadahilanang
may tinatawag tayong combined financial
statements. Ibig sabihin lang po nito, lahat ng
financial statements ng mga branches are being
combined with the home offices to come up with a
single financial statements for external reporting in
order to see the performance of the company as a
whole.

Bago po ang lahat, alamin po muna natin ang nature

ng mga accounts na ginagamit dito sa accounting for
home office and branch. Im pretty sure bago po lahat
ito sa mga paningin natin. Pero dont worry po, madali
lang ang treatment sa mga accounts na ito. Tiwala
lang!!! hehehe.
Meron tayong tinatawag na reciprocal accounts dito.
Ano po ba ang pagkakaintindi natin sa salitang
reciprocal? Simple lang po, reciprocal means
counterpart or katumbas ng isang bagay. Meron
tayong 4 na makikitang bagong accounts dito, sila yung
mga reciprocal accounts na tinatawag natin. These are
the HOME OFFICE ACCOUNT, BRANCH ACCOUNT,
SHIPMENTS TO BRANCH ACCOUNT and SHIPMENTS
FROM HOME OFFICE ACCOUNT.

Ang counterpart/reciprocal account

ng Home Office account ay ang
Branch account and vice versa.
Ang counterpart ng Shipments to
Branch account ay ang Shipments
from Home Office account and vice
versa

Perhaps you are wondering kung ano ang normal balances ng

mga reciprocal accounts na ito. Guys, lagi niyo tong
tatandaan huh. IMPORTANTE ito.

Account Title

Normal Balance
(kung saang side tumataas/nag-iincrease
ang isang account)

Home Office

Credit

Branch

Debit

Shipments to Branch

Credit

Shipments from Home

Office

Debit

Sa kaninong libro natin nire-record itong mga

accounts na to?
Account Title

Saan siya nire-record?

Home Office

Sa libro ni Branch

Shipments from Home

Office
Branch

Sa libro ni Branch

Shipments to Branch

Sa libro ni Home Office

Sa libro ni Home Office

Guys, take note huh. Wag kayong malito sa

HOME OFFICE at HOME OFFICE ACCOUNT.
Also, yung BRANCH at BRANCH ACCOUNT.
Yung Home Office at Branch lang, sila yung
mga entities or sila yung mga nagre-record ng
transactions or yung mga nagme-maintain ng
mga libro whereas (Sir Vals style) yung may
mga naka-attach na account, yun yung mga
accounts mismo. Hahaha! Refer to the tables
above kung saan sila nire-record. Nakuha po
ba?

Also, lagi niyo rin pong tatandaan na dapat

ALWAYS EQUAL yung balances ng HOME
OFFICE ACCOUNT at BRANCH ACCOUNT since
in the first place reciprocal accounts nga po
silang dalawa. Pero yung SHIPMENTS TO
BRANCH ACCOUNT at SHIPMENTS FROM
HOME OFFICE ACCOUNT ay hindi laging
equal. Bakit? Malalaman po natin yan sa next
chapter, which is yung special problems
about branch accounting. Magiging unequal
ang dalawang accounts na to dahil sa
OVER/UNDER-ALLOWANCE na account.

Kasi yung shipments ng mga goods from

home office to branch are not all the time
@COST, minsan may pinapatong sila dito
which we call the MARK-UP. Para atleast maassess din ni Home Office kung kikita ba si
Branch in a normal sale kung saka-sakaling it
purchases merchandise from third parties.
Pag-aaralan po natin yan later to be
discussed by Mr. Mauricio. For now, equal
muna silang dalawa. We will assume all
throughout na yung shipments ng goods to
branch is @COST. Ok po ba tayo?

Now, regarding dun sa summary ng

mga transactions and journal entries
corcerning the HOME OFFICE AND
BRANCH, kindly refer na lang po sa
book na AdvAcc Part 1 ni Mrs. Baysa.
Basahin po at intindihin lamang ng
maigi. Kumpleto na po yon. Salamat!

Exercise # 2 (Prepare the necessary journal entries in the books of the home office and branch)

The Magic89.9 Company established a branch in Makati City. Merchandise is shipped at cost
and periodic inventory system is used. Fixed assets are carried at the branch books and the home office
bills the branch for expenses paid on its behalf.
The transactions of the home office and the branch show the following:
Cash of P150,000 is used to establish the branch.
Merchandise costing P150,000 was shipped to the branch.
Equipment amounting to P75,000 was purchased for cash by the home office and transferred to the
branch.
Sales on credit amounting to P950,000 and P600,000 by the home office and the branch
respectively.
Account purchases amounting to P700,000 and P200,000 by the home office and the branch
respectively.
Payment of expenses amounting to P200,000 and P150,000 by the home office and branch
respectively.
Branch expenses paid by the home office, P25,000.
Cash collections amounting to P750,000 and P500,000 by the home office and the branch
respectively.
Cash remittance by the branch to the home office, P30,000.
Payment of liabilities amounting to P175,000 and P90,000 by the home office and branch
respectively.
Merchandise returned by the branch to the home office, P30,000.
Merchandise inventory end amounts to P160,000 and P150,000 in the home office and the branch
respectively.
Depreciation rate of 10%.

HOMEexercise:
OFFICE BOOKS
Answers to the above
Branch

150,000
Cash

150,000
150,000
Shipments to Branch 150,000
Branch
75,000
Cash
75,000
Accounts Receivable 950,000
Sales
950,000
Purchases
700,000
Accounts Payable
700,000
Expenses
200,000
Cash
200,00
Branch
25,000
Cash
25,000
Cash
750,000
Accounts Receivable
750,000
Cash
30,000
Branch
30,000
Accounts Payable 175,000
Cash
175,000
Branch

Shipments to Branch 30,000

Branch
Merchandise Inventory 160,000
Income Summary
No entry

Sales

950,000
Shipments to Branch
Purchases
Expenses
Income Summary

97,500
Branch Income
Branch Income
97,500
Income Summary
Income Summary
267,500
Retained Earnings

BRANCH BOOKS
150,000
Home Office
150,000
Shipments from Home Office 150,000
Home Office
150,000
Equipment
75,000
Home Office
75,000
Accounts Receivable 600,000
Sales
600,000
Purchases 200,000
Accounts Payable 200,00
Expenses 150,000
Cash
150,000
Expenses 25,000
Home Office 25,000
Cash
500,000
Accounts Receivable
500,000
Home Office 30,000
Cash
30,000
Accounts Payable 90,000
Cash
90,000
Cash

30,000
160,000

120,000
700,000
200,000
170,000

Branch

97,500

Home Office
30,000
Shipments from Home Office
30,000
Merchandise Inventory 150,000
Income Summary
150,000
Depreciation Expense
7,500
Accumulated Depreciation
7,500
Sales
600,000
Shipments from Home Office
120,000
Purchases
200,000
Expenses-A
150,000
Expenses-B
25,000
Depreciation Expense-Equipment
7,500
Income Summary
97,500
Income Summary 97,500
Home Office
97,500
N/A

97,500
N/A
267,500

TAKE NOTE:
Since reciprocal accounts sila, lets say yung HOME
OFFICE ACCOUNT, diba normal balance niya is
credit? So, a corresponding increase (credit) in the
Home Office account recorded in the Branch Book,
theres a corresponding increase (debit) din sa
BRANCH ACCOUNT recorded in the Home Office
Book and vice versa. Same treatment din sa
SHIPMENTS TO BRANCH ACCOUNT and SHIPMENTS
FROM OFFICE ACCOUNT. Thats the logic behind
kung bakit tinawag silang reciprocal accounts.(Refer
to the entries made on Exercise 2 above. Compare
mo yung entries between the Home Office Books
and the Branch Books)

Punta tayo ngayon dito sa issue ng sinasabi nating

COMBINED FINANCIAL STATEMENTS. Ano ba itong
combined financial statements? Simple lang, as its title
states, combined. Ibig sabihin, kung ang SMART
Communications ay may 4 na branches namely SM
Megamall Branch, MOA Branch, Trinoma Branch at
Market2x Branch, ang kaniya-kaniyang financial statements
which include the Statement of Financial Position,
Statement of Other Comprehensive Income and Statement
of Changes in Equity ay pinapasa sa HOME OFFICE ng
SMART sa Ayala quarterly or annually para e-combine lahat
into one set of financial statements including the Home
Offices for external reporting purpose. Hence, external
users like the investors and creditors would be able to know
the performance of SMART Communications as a whole
and not by branch.

Ung apat (4) na reciprocal accounts na

yun are being closed, kasi hindi naman
yun kailangan sa external reporting ng
isang company and normally hindi na
tayo nag-eentry dun. Those reciprocal
accounts are being closed diretso na sa
working paper natin. For illustration, refer
na lang po sa book ni Mrs. Baysa. Kindly
read and understand. Hehehe!!! Salamat.

PUNTA NA TAYO NGAYON SA LAST ISSUE NG

BRANCH ACCOUNTING. Pero may tanong muna
ako! Alam mo yung RECONCILIATION? Yun yung
kapag may nakaaway kang kaibigan mo, tapos after
realizing everything and accepting each others fault
eh nagkabati kayo, na tumugma na yung mga
damdamin ninyo eventually. Reconciliation tawag
dun. Hehehe! Pero bakit nga ba nagkakaroon ng
problema ang dalawang indibidwal? Probably its
because of misunderstanding, wrong-timing sa
pagbibitaw ng mga salita na nakakasakit ng
damdamin at marami pang iba.

Parang relasyon lang din yan ni HOME OFFICE at ni

BRANCH eh, minsan hindi sila nagtutugma or hindi
sila balance sa ibang pagkakataon dahil jan sa mga
errors in recording, remittances or shipments in
transit (meaning ung cash remittance ni branch na
hindi pa nakakarating kay home office @ year-end at
deliveries ng goods na hindi pa natatanggap ni
Branch na kung saan naka-record na sa libro ni
Home Office pero hindi pa na record ni Branch).
Yung reconciliation dito ay pareho lang din sa
process nang bank reconciliation natin dati. Kung
naaalala niyo pa yun, eh di good! Kung hindi na,
siguro kailangan niyong balikan yung Chapter 4 sa
Fin1 na libro ni Atty. Valix. Hehehe!

Since reciprocal accounts yung HOME

OFFICE and BRANCH at tsaka yung
SHIPMENTS TO BRANCH and SHIPMENTS
FROM HOME OFFICE, they must reconcile
each other at year-end. So kapag hindi sila
balance, jan tayo gagawa ng reconciliation
ngayon para maging balance sila. Just take
a look at this table and understand.

Reconciling Items

Adjustments

Adjustments

Branch
Account

Home Office
Account

a. Debits in the branch account without

corresponding credits in the home office account.
(ex. merchandise shipments in transit not yet
taken in the branch books)
a. Credits in the branch account without
corresponding debits in the home office account.
(ex. collections by home office of branch accounts
receivable)
a. Debits in the home office account without
corresponding credits in the branch account.
(ex. remittances by the branch at the end of the
period not yet taken in the home office books)
a. Credits in the home office account without
corresponding debits in the branch account.
(ex. collections by branch of home office accounts
receivable)

ADD
+

DEDUCT
-

DEDUCT
-

ADD
+

OK! Lets make scenarios using some of the

guidelines above to reconcile the reciprocal
accounts.
Lets say dun sa letter A, MERCHANDISE SHIPMENTS
IN TRANSIT. Transit means nasa biyahe pa ang mga
merchandise, hindi pa nakakarating kay Branch at
December 31. So ibig sabihin lang nito, hindi pa na
journalize ni Branch sa libro niya ang entry na (Dr.)
Shipments from Home Office and (Cr.) Home Office.
As a result, understated yung accounts na Shipments
from Home Office at Home Office sa libro ni Branch.
Kaya kailangan natin e-reconcile sila by adding these
accounts in the branch books.

EXAMPLE: Si SMART Communications nag-deliver ng

goods at cost sa branch niya sa Trinoma. Kunyari
malayo ang Trinoma sa Makati, mga after 2 days pa
bago ni Trinoma matatanggap ang goods (kunyari
lang naman. Hahaha). So lets say nag ship si Home
Office on Dec. 30 ng merchandise kay Trinoma
costing P10,000. So, ano yung magiging entry muna
ni Home Office dito sa libro niya on Dec.30 nung nag
deliver siya ng merchandise kay Trinoma Branch?
Diba (Dr.) Branch 10,000 and (Cr.) Shipments to
Branch 10,000.

Diba @year-end December 31 gumagawa tayo ng

financial statements? So si Trinoma Branch, since
most probably sa January 1 pa niya matatanggap
yung merchandise, ibig sabihin hindi pa niya
naisama yung entry na (Dr.) Shipments from Home
Office 10,000 and (Cr.) Home Office 10,000 nung
gumagawa si Trinoma ng kanyang financial
statements on Dec.31. Hence, hindi sila tumugma ni
Home Office sa Ayala. Kaya gumagawa tayo ng mga
adjustments para ma-reconcile natin ang balances
ng mga reciprocal accounts na yan. Ok po ba? Ito
pakitignan na lang ang illustration.

December 31, 2013

Home Office Books

December 31, 2013

Branch Books

Branch
10,000
Shipments to Branch
10,000

-WALA PANG ENTRY DITO SI TRINOMA BRANCH KASI NGA BY

JANUARY 1 PA NIYA MATATANGGAP YUNG GOODSSo, as u can see, hindi sila balance ni Home Office kasi nga wala
siyang entry na ginawa pa. Hence, e-reconcile natin sila by making
an adjusting entry on Dec.31.

Shipments from Home Office 10,000

Home Office

10,000

Ayun, equal na sila!!! Hahaha!

Cash remittances in transit ni Branch kay Home Office.

Dito @year-end wala pang nagawang entry si Home Office kasi hindi
pa niya natatanggap ang pera. Hence, hindi sila tumugma ni Branch.
So,to reconcile, we need to make an adjusting entry on Dec.31.
Cash

6,000
Branch

6,000

Ayun, balance na sila! Hahaha!

Cash remittances in transit ni Branch kay Home Office.

Entry:
Home Office
Cash

6,000
6,000

An illustration of journal entries recorded for interoffice transactions follow:

Transactions

Home Office Books

Transfer of cash from the

home office

Investment in branch
Cash

Transfer of cash from the

branch

Home Office Equity

Cash

Shipment from HO
HO Equity

Shipment from HO
HO Equity

Payment by HO of branch
expenses

Cash
x
Investment in branch
x
Investment in branch
x
Shipment to branch
x
Investment in Branch
x
Allowance for OV
x
Shipment to branch
x
Investment in branch
x
Cash
x

Expenses
HO Equity

Allocation of prev. paid

branch exp

Investment in branch
Expenses

Expenses
HO Equity

Transfer of mdse from HO at

cost

Transfer of mdse from HO at

above cost

Branch Books
x
x

x
x

Cash
x
Home office equity

Transfer of Fixed asset from

home office to Branch

Memo entry

Memo entry

(Note: There will be no entry if all fixed assets are

accounted in the books of the home office); otherwise:

To take-up branch
Profit/(loss)

To adjust the reported

branch NI /NL) for realized
allowance

Investment in branch
Accumulated depn
Fixed Assets

x
x

Fixed Assets
Acc Depn
x
HO Equity

Investment in branch
Branch Income

Income Summary
x
HO Equity

Branch loss
x
HO Equity
x
Investment in branch
Income Summary
x
Allowance for Ovrvltn x
No Entry
Branch Income
x

x
x
x

x
x

Note: The adjusting entry to reflect the true net income or

loss of the branch from the standpoint of the home office is
always favorable and only relevant when billing policy is
above cost:

Detailed computation of realized allowance for overvaluation thru sales by the

branch to outsiders during the period:

Cost = Billed Price/100% + % mark-up on cost = Mark-up on cost/% mark-up on

cost. The amount of allowance considered realized will be the allowance carried by
the cost of goods sold.
There are two pricing methods generally used by the home office in billing the
branch for merchandise transfers:
Billed at cost the merchandise is transferred at cost, thus when the branch sells
the merchandise, the entire gross margin is included in the branch net income.
Billed at cost plus markup the merchandise is transferred at an amount between
cost and the selling price. This intermediate pricing method allocates part of the
gross margin to the branch and the remainder to the home office.

Billed Price

Cost Price

Mark-up on Cost

Branch Beg Invty (from HO))

xx

Xx

xx

Current shipments (from HO

xx

Xx

xx

Branch End Invty (from HO)

(xx)

(xx)

(xx)

Cost of Goods Sold

xx

Xx

xx

 Working paper adjustments and

eliminations must be determined in
order to:
Eliminate inter-company balances from
the combined statements to avoid
redundancy, and
Adjust some items in the cost of sales
section of the branch income statement
to their true costs (as a consequence of
the billing policy not equal to cost).

The working paper adjustment/elimination entries are as follows:

a. Billed at Cost
HO Equity
x
Investment in Branch x
Accounts Payable
x
Accounts Receivable
x
Shipment to Branch x
Shipment from
Home Office
x
None
None

b. Billed above cost

HO Equity
x
Investment in Branch x
Accounts Payable
x
Accounts Receivable
x
Shipment to Branch x
Allowance for Ovrvltn x
Shipment from HO
x
Allownce for Ovrvltn x
Branch Beg Invty
x
Br Ending Invty (I/S) x
Branch End Invty (B/S) x

 When a company is composed of a home office and more

than one branch, the home office records include a separate
investment in branch account and a separate allowance for
overvaluation account for each branch. Separate worksheet
adjustments are made for each branch.
When assets are transferred from one branch to another
branch, the home office account on each branchs records are
used to record the transfers. (Inter-branch receivables and
payables are not created.) In essence, the transferring branch
reverses the entry to record the transfer from the home office
and the receiving branch enters a transfer as if it comes from
the home office.

MADAMO GUID NGA

SALAMAT!