Chapter ; r y Home Les) 1 TG © And yey ity SIT = General Wace ale ®, business fi a (he geog) ical Jy hy Ms usually widen the geo; i : } £eographici @wailable in more vel slgment. Fre ae through their travelling sablished ently however, better results are in dvant areas or inpie ceatin of Se ene ipany S share tore effective and efficient contact wit aken by the different sales Offices at customers need not deal with the far a rating sales unit. The desired re readily availabe to customers. h the customers. the direction of way head office goods, services and nay be organized as sales agencies or branches, Regardless ation is used, the financial statements of each separate unit th thase of the controlling unit to come up with financial stateme entity as a whole, are combined v nts of the eco Sales Agency and Branch Distinguished While both the sales ayericy and the branch office are vehicles forenlargingsales volume they exhibit a nurnber of significant operational differences. Asa es este usually carries a line of sarnples or displays merchandise but does noleaty stocks 9 ht Ont wus ors approva 4 are taken from custornier mxovaloforedit Thee office then ships the merchatdise direetly to the customers. Tbe resetvable sooounisare maintained in the home office vAiich also performs the election Ben ey Hans fund for sales agency expe is provided hy the home office and replenished wh isa ales auenc’ hausted. No other cash is haiidled hy the sales agency ex!Nie ye 2 i ret chan Of the other banc, Seaees affage nonntally nities stocks of merc APE ny be obtained solely ony tho Haine vitivg HbA portion may Be plc ‘ suippliers. The bran anaes the weit ates wilt fespect (0 Gut 1ST Cetiong offacconnts receivable, andl fhnetiane ti midst respect as ah independent Ousiness unit * Abranch may be restolotadt wniil (fia Tittle more that a sales agency. ae agency may be expanded until ifrecombles a hhnieh, The accounting procedures discussed this chapter are fr styotly detined sales apencies aiid branches. ACCOUNTING SYSTEM POR SALES AGENCIES counting process for the operation ofa sales agency does not introduce any, n ‘ sales agency is simply an extension of existing sal sey neither keeps a complete set of books nor uses a double . Ondinatily, a record of sales to customers anda list of cash vouchers are sufficient. An imprest system is usually adop a hak ae me office depend on whether sales agency net income not separately. If the home office wants to determine then agencies separately, it must maintain in the general ledger ense accounts in the name of the sales agency. For example, + Expense — Sales Agency. The cost of goods sold ofeach ed. If the perpetual inventory system is used, shipmentsto | y Shipments of Merchandise— Sales Agency. aupaating period, the necount Shipments of Merchandise — Sale ore toe Wola) of beginning inventory and purchases to determine yailaole ton wake by the hone oftice for its own operations. 4 Ager the cost of gow Ifthe home office elects nul ta determine separately the sales agency net income, tl transactions of the sales ayeney are recorded in the home office’s own revenue an expense accounts. Upon closititt ihe hooks, the income Summary account shows tl results of both operatioris. 4 When the home office transfers fixed dagela in Ihe sales agencies, the home office debi an appropriate asset account ideiitil ivil Wi the sales queney (For example, Fun and Fixtures ~ Sales Agent y) atid Ciedile Ihe apprapriate asset account.Home Office And Branch Ago, Hay: Geherat Biicedires 3 IMlustrative Entsies y Agsume that Manit Vader, tie, established a sales agency in Cebu. The revenues and expenses of the home wtie abe tecorded separately from those of the sales agency. Moreover, operating results ofthe sales agency and the home office are determined separately atthe ent ofeach acwatiitity 2 petiod, - The accounting entries py of Cebu Agency and the that the home ofceuses pated by Manila ‘Trader, Inc. as a result of the establishment Subsequent activities are shown in Ilustraiton 12- 1. Assume the periodic inventory system. Illustration 12. Transactions Home Office Books L. A working find of P10,000is Working Fund-Cebu Agency 10,000 established, Cash . 10,000 2. Shipped merchandise to Samples Inventory-Cebu Cebu Agency fire Agency 2,000 P2000. Shipments to Agency 2,000 3: Fill sales orders fom Cebu Accounts Receivable 90,000 Agency, PSO, Sales-Cebu Agency 90,000 | 4. Cost of gocds sold identified Cost of Sales-Cebu Agency 60,000 with agency sales, 50,500, Shipments to Agency 60,000 5. Replenishment of working find Various expense accounts- - ofthe agency, 93,600, Cebu Ageney 8,000 . Cash 8,000 6 Close revenue and expense Sales-Ceby Agency 90,000 accounts of the agency, Cost of Sales-Cebu Agency 60,000 { Various expense accounts- | Cebu Agency 8,000 | Cebu Agency Income 22.000 ‘i eich bndanne : reney Income 22,000 Close Cobw Agony itis 10 Cebu Ageney . Fe cine SaEANOnY SSL Iycome Summary 22,000 Sl Sr ate RE A Ht A the above eritties, it cai he seen how the operations of the sales agency are ted on tasbeokes of the lame aflive. The home office specifically designate all 5, tevennies, and eigen a relafiny 19 Hhe pales ageney. At the end of the period, me office cornpiites Hie came OF Ihe aENeY 10 evaluate its operation,ACCOUNTING FOR BRANCH OPERATIONS Ihe brarich maintain separate accounting systems. Noronelic the honte office and i : 3 AD 4 of books with a complete sel f-balancin set of accounts. Each recor fen in the usual manner. Jy scion Wilh outsicte parties in its own accounting systent in 5 sas she Honte office and the branch must record transactions with one anothey actions) itt their respective accounting systems. he honie office and each branch maintain separate books, all accounts xfornal reporting so that the external financial statements will represent agle economic enterprise. As to the preparation ofcombined finane by jusi adding together the balances of the accounts in each accounti soe an not result in the presentation ofa single economic entity. Certain eliminatic DOSSNN | Intracompany) Accounts outside parties are recorded in the usual manner, Transactions be a branch are recorded in intracompany accounts. These accot unts between the home office and the branch. When the bool and the branch are completely up to date, the balance in a reciproca office books will be equal but opposite that of the related reciprocal 2nch books. For example, ifa reciprocal account on the home offi (0 debit balance, the related reciprocal account on the branch bo t balance of the same amount. : Exench Current, while the reciprocal account on the branch books ‘onee Office or Home Office Current. When a company has several brar esiznent account for each branch is maintained on the home office ¢ perticular branch, The reciprocal Home Office account on the boo! ents the home office’s equity in the branch and the balance is shov +s eguity in the separate financial statements of the branch. Thebalanices of ‘he t79 reciprocal accounts are adjusted for the same inter-comy tranisachons. ‘Pe aecount halances are increased for asset transfers from the h office to the trae) and decreased for asset transfers from the branch to the h office. Adjustriepts 19 the accounts are also made for profits and losses of the bra with bravich prtfits increasing the account balances and branch losses leadin{ decrease. Note that increases in the home office’s Investment in Branch account accomplished with dehi! cnivies and decreases with credit entries. The ite is with respect to the Htaneh’s Home Office account, ees 3 éHonie Office And Brame’ teee me Gennenet) Pricedtords ’ 5 e reciprocal nate othe i The reciprocal nate *the Investnent in, Branch and the Home Office accounts, and the way in whieh they ave aftocted by vatious transactions, can be shown as follow (Home Of ces Se Boks) (Branch Books) ___tmves nh Home Office XXX Asset transfers to branch XXX ) XXX ‘transfers fiom branch XXX ! we] Branch profit XXX XX Branch toss XXX Establishment ef Branch When a com ‘es a branch, the transfer of assets to the branchis recorded investment in Branch account. Likewise, the branch records 0 the Home Office account. To illustrate, assume that AMG establishes a branch in Cebu. The home office transfers to the new office equipment that cost P20,000. The home office the following entry: stacent in Cebu Branch 120,000 Cash 100,000 Office Eyulpment 20,000 Note: Journal exteies are numbered consecutively throughout the chapter so that each entry is identified, Thuyse entries made on the home office books are designated in this chapter by M, wisile tose on the branch books are identified with B. Cebu branch records the transfer of assets from the home office with the following entry: BQ) Cash soo toe Office Equipment 20, Mae Home Ope 20, bs eth : affiee and the branch have recorded the transfer, the - Note that mm on aunt an the home office books and the Home Office oan anthe inal bouks lave feeipraeal balances of P120,000,Chapter]? 6 i ee Recognition of Branch Mcotte oF Loss sei fodically in the normal J income of record ine es are separal | manner. Branches seldom ome tax expense on their Income foreach brane is conipnited | te legal entities, income compute income taxes on Hidivicial | books. Because the home oftiee and its brane! taxes are computed dx The company asa whole. nts are closed to its Income Summary Income Summary account represents 1c Home Office account. The Home n place of retained earnings and other owners equity accounts ch, When the branch income or loss is reported to the home son the home office books to recognize the income or loss of the ranch's revenne and expense accour inthe usual manner The balance of the ss, and is closed to th here is a credit balance of PG0,000 in the Cebu branch’s Income the end of the Cebu branch: 60,000 » 60,000 me summary. epcrt of Cebu branch’s income for the period, the home office records wer in Cebu Branch 60,000 Cebu Branch Income 60,000 Fecord Cebu branch income, These entries maintain the reciprocal relationship of the Investment in Cebu Brant h account and the Horne Office account, Merchandise Shipments (0 4 Branch Merchandise sold by the bravieli may he obtained entirely from the home office orit_ may be allowed to acquite same merchandise from outside parties. Purchases of — Sane from oui dy fre recorded in the normal manner. fCebu branch purchases ,000 of merchandise from atilside parties, and the brat iodic 1 : 68, inch uses a periodic invento! system, the branch records the Hanisdelion as follows: i me B(S) Purchases 10,000 Cash oF Acwuunus Parable , 10,000 Record purchase of morchaneise fan outsiders , ill :ud Branch. Aeeqyels Home Office Gohbial Pincedibes Under the pempegaat a yeniii s\steii Iiventiry decoutit is debited instead of Purchases. When mer ctaancting »tiaiyetiived thin the hotite to a branch, both the home office and the bruich must sean (he nattetat, Metchinidise is transferred from the home office to a branch esther at shoavnyinal wost ti the home office or at some amount in excess of that fost, In thes chante cayly (he Wetthandise transfer at original cost will be discussed. Merchandise Bits} al Cyst, Roth the hoie office and the branch treat the transfer ofmerchent soa tho cane Way as the traitster of any other asset. To illustrate, assume that AMG's vee alice transfers merchandise with a cost of P80,000 to its Cebu branch: sp home oitice Vise periodic inventory system. The transfer is recorded on ehonks with the following entry: mm Cebu Branch 80,000 to Branch 80,000 hanidise to Cebu branch. és to Branch account is subtracted from the total of beginning os in the computation of the home office's cost of goods sold for oes the total goods available for sale and avoids an overstatement “The bramcis records the merchandise received with the following entry: ao) 80,000 ice 80,000 “or of merchandise from home office. The Shipmen s Home Office account on the branch books is included in the computation of tie branch's cost of goods sold as an addition to purchases; it increases the branch's total goods available for sale. Ss The home office's Gspments 1o Branch account and the branch's Shipments from Home Office account are nenninal aceounts and therefore closed at the end of the period to Income Surnmary aecusit together with the other revenue and expense accounts. Freight Charges on Merchandise Shipments, Freight costs incurred in shipping merchandise from tHe ioe office to a branch become part of the cost of the branch inventory. For exarsiple, assume that A MC's home office pays P5,000 to transport P80,000 of merchatidise to the Cebu branch. The wansfer is recorded by the home office with the followsritz crit: H(8) Investment in Cebu framich 85.400 Shipments ta Bien 80,000 Cash : : 5,000 Transfer of merehanntise 19 COME branelCatsa bivach records the transfer as follows: () Shipments from Home Office neon Freight-In 1,000 Home Office 85,000 Transfer of merchandise from home office. \coonpting for Branch Plant Assets “he procedures to be used in accounting for branch plant assets will depend on whether Seanch plant assets are recorded in the branch books or in the home office books. plant assets are recorded in the books of the branch, and plant assets are the home office for the branch, an entry is required on the books of | both and the branch. As an illustration of this, assume that the home office 50.000 of office equipment for its Cebu branch. The home office records che following entry: ed by =L(10) Investment in Cebu Branch 30,000 Cash 30,000 Purchase of equipment for Cebu branch. ‘s recorded by the branch with the following entry: 5(11) Office Equipment 30,000 Home Office 30,000 Purchase of equipment by the home office. i ysanch plant assets are recorded in the books of the home office rather than on the usiks.of the branch, no entry is needed on the books of the branch if the home office nusleos Che purchase, For example, if the home office purchases P30,000 of office Ainipsaeat 4or he Cebu branch, the home office records the purchase as follows: O2) Office Equipment - Cebu Branch 30,000 Cash 30,000 Purchase of equipment for Cebu branch, ¢#8¢6#8e4 on the books of the branch, No entsHome Office And Branch Accounting - General Procedures 9, On fhe other hands ifthe branch purchases plant assets that are recorded on the books of the home office, entries are needed by both the home office and the branch. As an example, assume that Cebu branch purchases P30,00 i by the branch. The branch records the purchase with ee follows pa ae B(12) Home Office 30,000 Cash 30,000 Purchase of equipment. : The home office records the purchase as follows: H(13) Office Equipment - Cebu Branch 30,000 Investment in Branch 30,000 Purchase of branch equipment by Cebu branch. When the branch purchases an asset that is carried on the home office books, the balance of both the reciprocal accounts is reduced. The transaction is treated as if the branch had purchased equipment for the home office. Apportionment of Expenses Branch expenses incurred and paid by the branch are recorded directly on the books of ‘the branch in the usual manner. However, the home office may allocate expenses to a branch. These allocated expenses might be of several types: a. Expenses incurred by the branch but paid by the home office. - pb. Expenses incurred by the home office on behalf of the branch; for example, depreciation on branch equipment carried on the home office books. c. Allocations of expenses incured by the home office; for example, a portion of the cost of general advertising. ~ Illustration Asan illustration of the treatment of the allocated home office expenses to the branch, i assume that the home office incurs the following expenses assigned to its Cebu branch: © \ Utilities expense (expenses incurred by Cebu branch and billed to home office account) P15,000 * Depreciation expense (on Cebu branch fixed assets carried on home office books) 3,000 Advertising expense (allocated to Cebu branch) 10,000 Total» |Chapter12 1g ; es i if they are Salisady has recorded these oe in th usual mane a a dete Deriodically, the home office not e br erect the following entry upon notifying the branch of the 2 ee Tare i Fie hare offic 30,000 15,000 5,000 10,000 Joceted expenses to Cebu branch, soe sa) Hestion ofthe expenses by the home office, the branch records the expenses a ws s 15,000 5,000 10,000 30,000 ses from the homie office. ves. the home office income would be understated and the branch )' OF COMBINED FINANCIAL STATEMENTS ombined financial statements for the company, the accounts of its branches are combined. Reciprocal or intracompany account inated because they relate to activities within the company rather ween the company and outside parties. . oreparation of combined financial statements, a working papernormally ‘ne accounts of the home office and its branches, and to eliminate the ts. Al) eliminations are only made in the working paper, of on the- tue units being combined. Rlusteativs #07,01 the basic working elimination entries needed to prepare combined » $01 a company with branch operations, assume the following balances of the reagxe wcoounts on December 31, 2013 after adjusting and closing entries have been prepared staaeph in Branch ; 295,000 Hons Office 295,000 Shignaesss 85,000 Sh 85,000Il Hoine Office And Branch Accounting — (eperat Bhaceidliie To facilitate the preparation at eainbitied fititicial statements on December 31, 2013 Baring paper is (obo Wet he (alluWwitg workitig paper elimination entries (E) are needed: ™ : BUG) Home Cyne 295,000 bs Rranieh 295,000 ecdl dbCBHHES, & neh 85,000 eh Monte Office 85,000 yarns of mienchandise. These Somot appear on the books of either the home office or the branch. / working paper SHecombintng the accounts ofa home office and a branch is illustrated i the next section, ACCOUNTING FOR BRANCH OPERATIONS ILLUSTRATED ‘ ihustration of accounting for branch operations, assume that MCC Inc. of Quezon City, 2 distributor of computer equipment, establishes a branch sale office in Cebu City. Both the home office and the branch use the periodic inventor system Branch fined assets are recorded on the home office books. Transactions durin 2013. the first year of branch operations, are summarized below: Asacomprehensive il a. Cash is sent to Cebu branch, P10,000. b. Merchandise is shipped to the branch at cost, P100,000. c. Store equiprnent is purchased by the branch and carried in the home office book P5,0060. d. Credit sales: Homie office, P459,000, Branch, P20,000, Collection of acvounts receivable: Horne office, 500,000, Branch, Pf Bere rating expenses pid: os Honettce, 176,000. Branch, £30,000. Cash remittance by Cebu lianich to home office, P50,000. Operating experises barged by lame office to branch, P6,000.~The journal entries to record the 2013 transactions on hs neo OMG _ Office and the Cebu branch are shown in Illustration 12-2. the joumal entiel on December 31,2013 are presented in Illustration 12-3. Int vie reciprocal inter-office transactions, take note the reciprocal relationship 0! iprocal ac, Mlustration 12-2 Home Office Books (a) Investment in Cebu Branch 10,000 Cash Cash Branch 10,000 Home Office j Transfer of cash to Cebu Transfer of cash from Branch, ; home office. (6) Investment in Cebu Branch 100;000 Shipment from HO Shipment to branch 100,000 Home Office Transfer of merchandise Transfer of merchandise to branch. from home office. (6) Store Equipment ~ Cebu Home Office Branch 5,000 Cash Investment in Cebu Office equipment purchase Branch 5,000 by the home office Store equipment purchase Sor the branch. (d) Accounts Receivable 450,000 Accounts Receivable Sales 450,000 Sales Sales of merchandise. Sale of merchandise. (e) Cash 500,000 Cash Accounts Receivable. 500,000 Accounts Receivable. Collections on account. Collections on account. O Operating Expenses 76,000 Operating Expenses Cash 76,000 Cash Operating expenses paid, Operating expenses paid. (g) Cash $0,000 Home Office Investment in Cebu Cash Braych. $0,000 Cash remittance to, home Cash remittance from il Cebu branch, ‘hy Invesiment in Cebu Branch 6,000 Oberati o Operating Expenses . 6,000 Ne ia one e Operating expenses hc citocstad to Cebu branch. ’Perating expenses allocated by the home office.«Home Office dusk Bran Closing Entries, A\ to P40,000. The ete ACCOUM INR Gunhenal Procedires SsuiNe that the branch inventory on December 31, 2013 amounts Ositty entries on the books of the Cebu branch and the home Office are presented below? Hlustration £23 Home Ofiice Rooks Cebu Branch Books (D Sales: 450,000 Sales . 120,000 Lncvine: Seemmerry 450,000 Income Summary 120,000 Clase sails, Close sales 2Mrcame Summary 290,000 + Income Summary 60,000 Inventory: 90,000: Inventory, 12/31 40,000 s 400,000, ~. Shipment from HO 100,000 80,000° Close cost of sales. 400,000- / @)iucame Summary 70,000", Income Summary 36,000 Cnering Expenses 70,0007, Operating Expenses 36,000 Clase aperming expenses. Close operating expenses A (Sy fiesestmen 24,000 Income Summary 24,000 Cetu: 2: Sncome 24,000 Home Office 24,000 Record sucome from Cebu Close income summary. branch: G) Cebu Bravicd freome 24,000 Income Sumsary 24,000 Close Cater troneh income. : Gyincome Summary 114,000 Retained karnings 114,000 Close income summery. Note: Sorne of the amounts in closing entry (2) are assumed.4 Investm : After the entries in Hiwettatinns 13-3 atid 12-3 have been Be ide Ea Cebu Branch account an ihe books of the home office wi ce PSS,000. The balanes af the aceolinit is detetttiined as follows: Ubestration Uw (Home Office Books) investment in Cebu Branch P 10,000 ¢ Equipment purchased by branch recorded on i home office books P 500 Cash received from Cebu 4 branch Balance forwarded ¢ Home Office account on the books of the branch will have ¢ 009 , determined as follows: : (Branch Books) Home Office wee, tenned Cash received from home fg ais P5000 ¢ office P10,00 50,000 + Merchandise received from home office Operating expenses charged by home office Balance forwarded 85,00 Net income HAO 20, Balancefone Office ed Sass AONE Gelteral Procedures 15 Separate Heancial Matonieits ‘Normally (he taneh propated its own financial statements so that the management of the home oftieo oan review and evaluate the operating résults and financial position of - the branch, The honre office also prepares its own finacial statements so that it may appraise Ha Ohdonily the results of its own operation and its own financial position. oS oy Yoo daia ih Mhustration 12-2, 12-3 and 12-4, the separate financial statements whe Qaneh and the home office are presented below and in the next page. Bicstration 12-5 Cebu branch: Fimancial Statemen —Oebu Branch ‘mancial Position P 35,000 10,000, 40,000 P_ 85,000 85,000 MOG Cosmyony Cebu Branch Statement J Compresensive Income For the Your Eades Secember 31,2013 P120,000 Siaganent from home office » 100,000 Inventory, December 31 + i 40,000 60,000 Grose fnctinnt 60,000 Operating, expenses 36,000. P 24,000 Comprehensive Incpiie aRinanetal SOleents — Hote Office: MCG Conary Mayne we Statoaoat of Haaneial Dosittant Decombar AR ANA Asceag Cash ASO HOETIVADTE Chapter12 coe Biwi eS ee ee ~ QE 195,000 Less Accovmlated depreciation 20,000 Sennen — Cebu branch maestont iia Deanch Starexers of Comprehensive Income Far tine Yexr Ended December 31, 2013 P 80,000 400,000 Merckens ise aveilable for sale ~ 480,000 hiprents 49 branch 100,000 Merchant: eyeilable for own sale 380,000 90,000 Inventory, December 3 Gross incortis Operating expanses Net incorne fro awn aperaion Cebu branch income Compréhensive ifietitiéHome Office Aud Branch Accountiny ey AH Vnevddures Combined Financial Staton ty Combined financial Statens At the hanie 6tfies the effects of business transdetic WH OTHE bisiiegs entity with otitsiders. To achive this, intercompany t MSACHONS MAL be olinvinated, (0 facilitate the preparation of combined statements, working papers ano Naually prepared. Paves fotmnats of working paper may be used, the triad balance working Paper and the Hree-section working paper. In accounting for branch aperations the trial haldiice working paper is normally used. The other format will be used in, patonbanbaidiary Aecotititing. The combined statements Working paper tis Company for 2013 appears ils ‘ind the bratich are prepared to show ing (he trial balance approach for MCG strALON 1226, The following elimination entries are required inthe working paper: 85,000 estment in Cebu Branch 85,000 Eli tome Office account against Investment in account Shipments to Branch 100,000 Shipments from Home Office ~ 100,000 Elintinate Shipments to Branch and Shipments from Home Office accounts. points should be noted in the working paper: 1. Accounts having debit balances are first listed followed by accounts with credit balances. Beginning inventories are reported in the adjusted trial balances as debits; these are to be recognized in arriving at c Ending inventories are presented as debits so that they may be recopnized as assets in the preparation of the balance shed. Accordingly, they are also presented under the credits so that they may be tecognized as deductions from cout of merchandise available forsale in arriving at the cost of sales. Retained carnings presented under the credits should be the beginning balance. 2. The Home Office account is eliininaled against the luvestment in Branch account (elimination entry no, 1) 3. Shipments to Branch account is eliiiinated against the Shipments from Home Office account (elimination entry fio. 2). The combined financial statements fir MOG Conv \ prepared from the working paper in Illustration 12-6 ate showiti iii Uhietialinn 13“squatudiys osipueysious uo syunosae ay) aywunuiy> of, (q) g si no ie o}608 ig OE © | ~: gaaend ah pire 290. Suloy o¢n 40 THSUICNNES, SINS ae siunogse yeooudroay auf ayeutwiija of (7) § € : : ~ 000°68rd | 000'68bd | 000°00Ld | 000‘00ZE : OO0'FTT O00FIT = 5 7 TT" Hegey fo 2101s 04) susoouy “duro ooo'sce | 00068 | 000'00L | oo0‘98S | OOO'T9IA 000'I91d 000%0ET 000‘0r d | 000°6 d (st 03) = 1¢ Jaquiasag ‘uowaauy o00'18Id | 000°Sz6d roy | ‘ ooo'o01 () | 000;007 youesq oF stusuidiys | “ 00'0Lsa 000°0Z1 | 000°0Sr | 00°01 00002 | 00°00 . : o00%o07 e 000°19 d (2) | 000'I9 d jo WOH | o00's8 < o00's3 aqeced siunoaay | 000°07 € 000'0c d| juauidinbs pur wey = ~ wowbisaudap povenungSy | supssy | 00U'0ET 000'0r d | 000°06 d (ay foams oy) | Te saquisosq: uowwsauy O001STd | 000°SZéd| [ery 000°901 e Foooss | oov0z | sosuadixo: Tunresssigy . ooo'oor (Y 000°001 SYJO DuLOY. WON, spas 000'00r o00‘007 | 4 00°19 a (%) } o00'ts | o00'00z Bays | 000002 |. | o. 000'08 J d00'es ~ p Senwep \ 4 D00or | Coo;E — | dgg'V> | yqBAiRRes Sh | S008 | OOO'SE a | DOORS gi YT Way ag yD A YG ipeepemens a 240k ag BP Avene TDP peasy suayye — uve Mike \ pour De ah voll, ee } menetnstatcnscsciascesbrattons i ae lL | aol nasscreiiacemaninmicesin| WONT Pater papugy swag a AWOULODER Pep otitERY pdeEgitta > 205 Sates Supe 2 Suedway oq 9-1 VoNDasnyyHome Oifice And Brae’ eon — General Procedtives i 19 Combinest FiNaielal siaianienits Iilistested The format coniniiest stateliehts ate éasily prepared using the data found in the working paper. The coaived siateltients of MCG Com pany are presented below: Hlustratinvs 52.7 MOGCuNAAY Combined SAWCT For Year Suda Dasewnhor at, 2013 4 t , 570,000 P 80,000 400,000 goods available for sale 480,000 xx, December 31 130,000 350,000 ‘ 220,000 106,000 Comprsiumsine income P114,000 MCG Compan 2 Comisine:d Stanement of Financial Position P 89,000 Accounts rears 70,000 Inventory, Dez 130,000 Store equipment 200,000 - Less Accunmiztes depreciation 20,000 180,000 Total Assets 4 \ 469,000 Liabilities and Stockholders’ Fequity Liabilities: Accounts payable P85,000 Stockholders’ equity? Capital stook, F160 par value P200,000 ‘ Retained earnitigs 184,000 384,000 Total Liabilities and Stoekholders’ Equity 469,00020 Chapter!2 oe RECONCILUATION OF RECIPROCALACCOUNTS ‘The Investment ii Braneh account on the home office books and the Home Office account onthe branch hooks are reciprocal accounts and theoretically, should have the ane al the end ofthe accounting period. However, this condition seldom sive hooatise of bookkeeping or mechanical errors such as duplication of and transpositions on either set of books that have occurred, or certain already have been recorded by one office andnot yet by the other, or » ag dedween the recording of the same transaction on the home office and example, debits Investment in Branch account immediately upon erchandise to the branch. The branch, on the other hand, credits w23t only at a later time when the merchandise are received, which ’s after the shipment by the home office. Another example of a = causes different balances in the two accounts is the remittance of cash home office. Entry on the branch books of the cash remittance is the home office while the cash is still in transit The lack ofagreement iprocal accounts poses no problem during the accounting period. nd of the accounting period, the reciprocal accounts must be brought xt. oefore combined financial statements are prepared. ed in reconciling the two accounts may be classified as follows: data ae con 1, Debits in theJnvestmentin Branch account without corresponding credits in the Home Office aout, Credits in tie Javestinent in Branch account without corresponding debits in the Z, Horne Office account : 3. Debits in the Home Office acconnt without corresponding credits in the Investment in Brarich accent i ‘ / 4. — Credits in the Home Office aceount without corresponding debits in the Investment in Branch account : Bookkeeping ar meuhant 2al errors on either set of books.Home Office And Branch Accountin General Procedures Asanillustration of the procedhnes for recanjet ling aeeaitl balariees at ‘year-end, assume that the home office and the branch AECONTTLNL e6di 6 UF S¥eet Company contain the following data on December 31, 2014 ‘i Vnvestmont in Brqneh (ime Offew Hankey Nov, 30 Balance PSH,000 Wee 8 Celi tacetved from 2 btaniot 30,000 Dee. 1 Expenses pad changeable JN Collection of branch’ r to branch vaso AveouTitS Féedivable 5,000 30. Merchandise shipped to branch 20,000 Halanes friewarded 36,450 P71,450 Balance, December 31 Home Office (Branch Books) Dec. 8 Cash sent to home , Nov. 30 Balance P50,000-— office 30,000 29 Purchased office | Dec. 1 Expenses 1,540 8,000 28: Collection of home office 19,540 accounts receivable 6,000 57,540 PS7,540 Balance, December 31 P19,540 An analysis of the accounts shows the existence of five reconciling items, which are discussed below. 1. A debit of P20,000 in the Investment Branch account without a corresponding credit in the Home Office account, On December 30, the home office shipped merchandise to the branch in the amount of P20,000. The shipment haw not yol reached the branch as of) December 31 and, therefore, no entry for the shipments appears on its books. The required adjustment at year-end for this type oF feconwiling (er Will be an entry on the branch books as follows: Shipments from Home Office = In Thanet 20,000, Home Office 30,000NS & Chapter 12 ‘he AOS Sreonre fran Hore Office — In Transit is closed to the Income the preparation of the statement of comprehensive income ese PON halanee ih the aecount Shipments from Home Office Transe is SAAT fo the halance ofthe account Shipments from Home Office, Sesh Hw aeconnts is Now equal to the amount shown in the home ‘as is shywnents to branch, Therefore, the two reciprocal accounts ™) for the purpose of preparing a combined statement. Surathary aout oa hho Pee Swanoh in detompining its ending inventory, must add to its inventory . *e 2) SY) worth ofimerchandise in transit. This lot of merchandise will “N * yeh statement of financial position and will also be a part of the sined financial statements. © Investment Branch account without a corresponding Tet account, accounts receivable of the branch was collected by the ‘h customer. The collection was recorded by the home 4 and a credit to Branch Current account. No entry has . therefore, the following entry is required on the branch 5,000 5,000 some Office account without a Corresponding credit in count. a6 oranch purchased office equipment for P8,000. Since assets sried in the home office records, the entry made by the » a debit to Home Office and a credit to Cash. No ate 27 the louie office, therefore, the following entry should be ve henne Mfive bovks Office Lawipanenl > Branch Lovestweans tu Brunch 8,000 8,000 A credit of F6,009 in the Home office account witho the investrnerd in brane aexanuiit On Deverrites 24, the braich eallected for the home office an accounts receivable anntvurititng 4 16,000 fron 4 home office customer. The collection was recorded by the trarich by # debit to Cash and a credit to Home Office account. ut a Corresponding debit inGeneral Procedures 23 Home Office And Brawch Aeconntin No entry has been made by tite home office, therefore, the following entry is Tequitert on the home office books: davesirent dr branch 6,000 Awoonnis receivable 6,000 A SebitorP 1480 in the Investment in Branch account was erroneously recorded dy the branch in the Home Office account as P1 ,540, resulting to a difference of POO (PL S0~ P1,450). The home office entry is assumed to be correct. The following enty is required on the books of the branch: 90 90 of these five end-of-period adjusting entries is to bring the reciprocal ‘nto agreement, as shown by the following reconciliation statement. Miluscration 12-8 Sweet Company —Home Office and Branch _ Recomcitize: of Reciprocal Accounts 2013 (Home Office Books) (Branch Books) Investment in Branch Home Office Account Account © whjastinents P36,450 (Dr) P19,540 (Cr) Merchensise shipped to branch of frensit 20,000 ty de of home office wisented by branch 6,000 Total 42,450 39,540 Deductions (2) Reesividile of branch callected by fears alice (5,000) (3) Office equipinent purehased tay beaeeh . (8,000) G5) Bere? iiede by branch in recording. Cx pIOHEEE Adjusted batances