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Home Office and Branch Accounting: Investment in BR (IIB) / Branch Current Account (BCA)
Home Office and Branch Accounting: Investment in BR (IIB) / Branch Current Account (BCA)
Home Office and Branch Accounting: Investment in BR (IIB) / Branch Current Account (BCA)
Home Office
● Investment in BR (IIB) / Branch Current Account (BCA)
● Year-end: Combined Financial Statements (HO-BR combined)
○ A, L, E, Inc, Exp
○ Eliminate Reciprocal Accounts:
■ IIB
● b/s of HO
■ HOCA
● b/s of BR
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2 PROBLEMS
1. Reconciliation of IIB and HOCA
2. Combined Financial Statements
How to reconcile?
● Record unrecorded items
○ Sender- record transactions upon shipment
○ Recipient- record transactions upon receipt
■ If in transit, recipient did not yet record
● Correct errors
When to increase/decrease?
● Increase:
○ Asset transfer (HO to BR)
○ BR generates NET INCOME
● Decrease
○ Asset transfer (BR to HO) --- return of investment or cash remittance
○ BR incurred NET LOSS
Journal Entries
*AFOBI- Allowance for overvaluation of BR Inventory (unrealized profit)
TRANSACTIONS HO books BR books
(IIB) (HOCA)
CASH TRANSFER
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COST OF GOODS SOLD Beg Inv xx Beg Inv xx
(STB and SFHO are “inventories”) Net Purch xx Net Purch xx
Ship to BR (xx) Ship fr BR xx
TGAS xx TGAS xx
End Inv xx End Inv xx
COGS xx COGS xx
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AR xx
EXPENSES
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NET INCOME/ LOSS INCOME SUMMARY ACCOUNT (BR)
● Income- credit side (to close, debit)
Sales xx ● Loss- debit side (to close, credit)
COGS (xx)
Gross Profit xx
OPEX (xx)
NI/L xx
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*Billed price is based on sales
Home Office
Branch
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*AFOBI- the understatement in the Net Income of the Branch
AFOBI, beg inventory xx
AFOBI, SFHO xx
AFOBI, beg (TGAS) xx
AFOBI, end (xx)
Realized AFOBI xx
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PatDen
SAMPLE EXERCISES
A. SALES AGENCY
3. AR- SA 150,000
Sales- SA 150,000
4. COGS 90,000
Ship to SA 90,000
6. Sales - AR 150,000
COGS 90,000
Expenses 20,000
SA - Income 40,000 ---- NET INCOME
7. SA - Income 40,000
Income Summary 40,000
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B. HOME OFFICE AND BRANCH BOOKS
1. Journal Entries
a. Purch 200,000
AP 200,000
COGS 192,000
Inventory 20,000
Purch 200,000
SFHO 12,000
BI 12,000
Purch 200,000
TGAS 212,000
EI 20,000
COGS 192,000
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e. Cash 80,000 HOCA 80,000
IIB 80,000 Cash 80,000
f. Expenses 150,000
Cash 150,000
2. Reconciliation
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