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    Lesson 4 Accounting For Home Office

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    This document provides information on accounting for home office, branch, and agency transactions. It defines the key differences between a branch and sales agency. It discusses how transactions of agencies and branches are recorded, including maintaining separate accounts. It also covers intracompany accounts between the home office and branch, instances where these accounts may not be equal, and procedures for preparing combined financial statements. Sample problems are provided to illustrate accounting for specific transactions between a home office, branch, and agency.

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    Lesson 4 Accounting For Home Office

    Uploaded by

    heyhey
    888 views8 pages
    This document provides information on accounting for home office, branch, and agency transactions. It defines the key differences between a branch and sales agency. It discusses how transactions of agencies and branches are recorded, including maintaining separate accounts. It also covers intracompany accounts between the home office and branch, instances where these accounts may not be equal, and procedures for preparing combined financial statements. Sample problems are provided to illustrate accounting for specific transactions between a home office, branch, and agency.

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    Lesson 4 Accounting for Home Office

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    This document provides information on accounting for home office, branch, and agency transactions. It defines the key differences between a branch and sales agency. It discusses how transactions of agencies and branches are recorded, including maintaining separate accounts. It also covers intracompany accounts between the home office and branch, instances where these accounts may not be equal, and procedures for preparing combined financial statements. Sample problems are provided to illustrate accounting for specific transactions between a home office, branch, and agency.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    888 views8 pages

    Lesson 4 Accounting For Home Office

    Uploaded by

    heyhey
    This document provides information on accounting for home office, branch, and agency transactions. It defines the key differences between a branch and sales agency. It discusses how transactions of agencies and branches are recorded, including maintaining separate accounts. It also covers intracompany accounts between the home office and branch, instances where these accounts may not be equal, and procedures for preparing combined financial statements. Sample problems are provided to illustrate accounting for specific transactions between a home office, branch, and agency.

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    © All Rights Reserved
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    of 8

    LESSON 4 ACCOUNTING FOR HOME OFFICE,

    BRANCH, AND AGENCY TRANSACTIONS (4


    HOURS)

    1. What is the difference between a Sales Agency and a Branch?

    BRANCH SALES AGENCY


    Carries stocks of merchandise YES. NO.
    available for sale?
    Merchandise it carries is for sample or
    display purposes.
    Sells goods directly to YES. NO.
    customers?
    It merely takes orders from customers
    to be approved by the home office.
    Has authority to engage in YES. NO.
    transactions as an independent
    business unit? It operates under the direct supervision
    of the home office.
    Maintains a complete set of YES. NO.
    books?
    Agency transactions are record-ed in
    home office books.

    2. How do you account for the operations of an agency?

    A sales agency neither keeps a complete set of books nor uses a double entry
    system of accounts. Ordinarily, a record of sales to custom-ers and a list of
    cash payments supported by vouchers are sufficient. An imprest system is
    usually adopted by the home office for the working fund of the sales agency.

    If the home office wants to determine the net income of each of its agencies
    separately, it will maintain separate revenue and expense ac-counts for the
    individual sales units. If the home office elects not to determine agency
    operations separately, the transactions of the agency are recorded in the home
    office’s own revenue and expense accounts.

    3. How do you account for the operations of a branch?


    Normally, the branch maintains a separate ac-counting system and a full set of
    books with complete self-balancing accounts since it operates like an
    independent business unit.

    4. What are Intracompany accounts?

    These accounts are used to record the transactions between the home office
    and the branch. These accounts are reciprocal accounts be-tween the home
    office and branch which means that if the books are completely up to date, the
    balance in a reciprocal account on the home office books will be equal but
    oppo-site of that of the related reciprocal account in the branch books.

    The Home Office or Home Office Current account is recorded by the branch to
    take the place of the customary capital accounts. Its reciprocal account on the
    home office books is the Investment in Branch or Branch Current.

    5. What are the transactions that affect the intra company accounts?

    (Home Office Books) (Branch Book)

    Investment in Branch Home Office


    xxxx Assets transfer to branch xxxx

    xxxx Assets transfer from branch xxxx

    xxxx Branch Profit xxxx

    xxxx Branch loss xxxx


    6. What are the instances when reciprocal accounts will not show identical
    balances?

    1. Transactions have been recorded by the branch but not by the home office.

    · Debits in the home office account without corresponding credits in the


    branch current account. e.g. cash remittance of the branch to home office in
    transit;

    · Credits in the home office account without corresponding debits in the


    branch current account. e.g correction of account for the under-statement of
    net income for the preceding period.

    2. Transactions have been recorded by the home office but not by the branch.

    · Debits in the branch current ac-count without corresponding credits in


    the home office account. e.g. shipment of merchandise in transit

    · Credits in the branch current ac-count without corresponding debits in


    the home office account. e.g. branch’s accounts receivable collected by the
    home office.

    3. Bookkeeping or mechanical errors on either set of books.

    7. May the home office bill merchandise to branch other than at cost?

    Yes. Merchandise shipments may be billed at cost plus an arbitrary percentage,


    otherwise known as billed price. Under this method, the profit recognized by
    the branch will be less than its actual profit because its cost of goods sold is
    overstated insofar as the home office is concerned.

    COST + ALLOWANCE FOR OVERVALUATION (% of


    Cost) = BILLED PRICE
    8. What are the problems involving billing of merchandise to branch above
    cost?

    1. Computation of branch inventory at cost.

    Branch inventory acquired from Home Office at billed price P xxxx

    Divide: Billing Percentage of Cost %

    Branch inventory at costs P xxxx

    2. Computation of the actual or true branch profit insofar as the home office is
    concerned.

    Branch profit (loss) as reported P xxxx

    Add: Overvaluation of branch cost of goods sold %

    Actual branch profit insofar as the home office is concerned P xxxx

    Branch Sales P xxxx

    Branch costs of sales at cost %

    Branch inventory at costs P xxxx

    9. What are the transactions that occur between branches?

    Interbranch transactions like transfers of cash and merchandise occur between


    branches. A

    branch does not maintain a reciprocal account with another branch but
    records the transfer in the Home Office account.

    10. How do you account for the freight costs incurred in interbranch transfers?

    Freight costs incurred because of indirect routing does not increase the cost of
    inventories. The amount of freight costs properly included in inventories at a
    branch is limited to the cost of shipping the merchandise directly from the
    home office to its present location. Excess freight costs are recognized as
    expenses of the home office.

    11. What are the necessary procedures for the preparation of the combined
    financial statements of the home office and the branch?

    a. Prepare entries in the working paper to eliminate:

    Reciprocal Accounts

    Inter-company transfer accounts

    Overvaluation in branch inventory

    b. Prepare Combined Statement of Financial Position and Statement of


    Financial Performance

    c. Report to external users

    REVIEW PROBLEMS

    Problem 1: On April 1, 2014, Flores Company established an agency in Quezon


    City, sending its merchandise samples costing P82,500 and a working fund of
    P65,000 to be maintained on a imprest basis.

    · During the month of April, the agency transmitted to the home office
    sales orders that cost P468,750. However, the home office was able to fill up
    only 80% of the orders.

    · Collections from customers amounted to P250,000.


    · A home office disbursement chargeable to the sales agency includes the
    acquisition of equipment for Quezon City, P180,000 to be depreciated at 10%
    per annum.

    · Payments made by the agency during April were as follows: advertising


    expense worth P15,000; utilities amounting to P12,000; annual rent of P90,000
    and miscellaneous expenses of P9,200.

    · The agency samples are good until February 28, 2015.

    · It was estimated that the gross profit on goods shipped to bill agency
    sales orders averages 25%.

    Ø Compute for the net income (loss) of the agency for the month ended April
    30, 2014.

    Sales (P468,750 x 80%) / 75% P500,000


    Cost of Sales (P468,750 x 80%) (375,000)
    Gross Profit P125,000
    Expenses:
    Advertising expense P15,000
    Utilities expense 12,000
    Rent expense (P90,000/12) 7,500
    Miscellaneous expense 9,200
    Depreciation of equipment 1,500

    (P180,000 x 10%)/12
    Amortization of 7,500 (P52,700)
    samples
    (P82,500/11)
    Net income P72,300

    Problem 2: Cortez Trading Co. operates a branch in Tuguegarao City. At close


    of the business on December 31, 2014, the Home Office Current account in the
    books of Tuguegarao branch showed a credit balance of P928,100. The
    interoffice accounts were in agreement at the beginning of the year. For
    purposes of recon-ciling the interoffice accounts, the following facts were
    ascertained:

    a. Freight charge of P4,200 on merchandise shipped to the branch was paid by


    the home office and was recorded in the branch books as P420.

    b. Home office debit memo for P6,900 was recorded twice by the branch by
    debiting the Home Office Current account.
    c. The branch failed to take up a P4,000 debit memo from the home office.

    d. Branch store insurance premiums of P3,200 were paid by the home office.
    The home office debited Insurance Expense and credited Cash in its books. The
    branch recorded the amount of P32,000 as a liability.

    e. A branch customer remitted P5,000 to the home office. The home office
    recorded this as a cash collection of its own receivable on December 23, 2014.
    Upon notification on the same year, the branch debited the amount to
    Receivable from Home Office and credited Home Office Current.

    f. A P35,000 shipment, charged by the home office to Tuguegarao branch, was


    actually sent to and retained by Ilagan branch.

    g. On December 27, 2014, the branch sent a check for P4,500 to its suppliers.
    The branch erroneously recorded the transaction as a remittance to the home
    office and sent a copy of the debit memo to the home office. The home office
    recorded this upon receiving the debit memo on January 2, 2015.

    h. The home office allocated advertising and rent expense totaling P6,000 to
    Tuguegarao branch. The home office charged the said expenses to Aparri
    branch by mistake. Tuguegarao branch had not entered the allocation at year
    end.

    i. Inventory costing P13,000 was sent to the branch by the home office on
    December 12, 2014. The branch recognized a liability by crediting Accounts
    Payable upon the receipt of the inventory.

    j. A branch customer remitted P21,000 to the home office. The home office
    recorded this cash collec-tion on December 21,2014. Upon receiving a credit
    memo, the branch recorded the transaction twice on December 23,2014.

    Ø The adjusted balance of the Home Office Current account.

    Ø The unadjusted balance of the Branch Current account.

    Ø The adjusted balance of the Branch Current account.

    Home Office Current Branch Current

    (Branch books) (Home Office books)


    Unadjusted balance P928,100 1,035 280
    Adjustments:
    a. 3,780
    b. 6,900
    c. (4,000)
    d. 35,200 3,200
    e. (10,000) (5,000)
    f. (35,000)
    g. 4,500
    h. 6,000 6,000
    i. 13,000
    j. 21,000
    Adjusted balance 1,004,480 1,004,480

    TEACHER’S INSIGHTs

    · The two essential elements of a joint arrangement are (1) contractual arrangement
    and (2) joint control by two or more parties.

    · Joint control is the contractually agreed sharing of control of an arrangement


    which exists only when decisions about the relevant activities require the unanimous
    consent of the parties sharing control.

    · An arrangement can still be considered a joint arrangement even if not all of the
    parties have joint control of the arrangement.

    · A party to a joint arrangement is an entity that participates in a joint arrangement,


    regardless of whether that entity has joint control of the arrangement.

    · A joint arrangement is either (a) joint operation or (b) joint venture.

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