Home Office and Branch Accounting

Agency – a local sales organization that operates under the direction of a home office and carries no
stock other than sample of the goods offered for sale to customers.
Branch – an organization that sells goods out of a stock that it maintained and possesses the
authority to engage in transactions as an independent business unit.
Consignment – a form of agency where goods are sent to an outside / external entity who
undertakes to sell the goods at a commission.

Agent
⮚ An extension of existing sales territories.
⮚ Neither keeps a complete set of books
⮚ Determination of net income separately,
the Home Office (HO) will maintain
distinct expense account and if not, HO
will record to its own account.
Branch
⮚ Maintain separate accounting system.
⮚ HO and Branch will combine their
financial statements.
⮚ Elimination of necessary transactions.
⮚ Transactions between HO and Branch
are recorded in intracompany
accounts.

Intracompany accounts or reciprocal accounts:

Investment in Branch – the account the home office use to track its net investment in the branch.
Asset.
Home Office – the account the branch uses to track the home office’s equity in the branch. Equity.

Debit to investment in branch / Credits to home office account:

1. Transfers of assets to the branch
2. Assumption by the home office of branch expenses or liability.
3. Allocation (or charge) of common expenses incurred by the home office for the branches.
4. Adjustment for profits earned by the branch.

Credit to investments in branch / Debit to home office account:

1. Remittances of the branches to the home office.
2. Assumption by the branch of any home office expenses or liability or collection of home office
accounts.
3. Loss incurred by the branch.

*Shipments to Branch – deducted from beginning inventory and purchases of HO in the computation
of COGS.
*Shipments from HO – addition to purchases, therefore, increases COGS.

JOURNAL ENTRIES:
Transactions Home Office Books Branch Books
The home office shipped P20,000 Investment in Branch 30,000 Cash 20,000
cash and P10,000 supplies to Cash 20,000 Supplies 10,000
establish the branch. Supplies 10,000 Home Office 30,000
The home office shipped and Investment in Branch 40,000 *Shipments from HO 40,000
billed the branch inventory at cost *Shipments to Branch 40,000 Home Office 40,000
of P40,000
The HO and branch purchased Purchases 80,000 Purchases 40,000
goods on account P80,000 and Accounts payable 80,000 Accounts payable 40,000
P40,000, respectively.
The HO sent the branch Investment in Branch 20,000 Equipment 20,000
equipment costing P20,000 with 4 Equipment 20,000 Home Office 20,000
useful life, which shall be carried
in the branch books
The branch returned P2,000 Shipments to Branch 2,000 Home Office 2,000
defective goods to home office Investment in Branch 2,000 Shipments from HO 2,000
The HO purchased a P50,000 Equipment 50,000 Memo entry
with 10-year useful life, machine Cash / AP 50,000
for the branch’s use but shall be Equipment – branch 50,000
carried in the HO books Equipment 50,000

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 HO and branch made sales on Accounts receivable 200,000 Accounts receivable 100,000
account of P200,000 and Sales 200,000 Sales 100,000
P100,000, respectively.
HO and branch incurred and paid Expenses 20,000 Expenses 10,000
expenses of P20,000 and Cash 20,000 Cash 10,000
P10,000, respectively.
The home office and branch paid Accounts Payable 20,000 Accounts Payable 10,000
P20,000 and P10,000 of their Cash 20,000 Cash 10,000
account purchases, respectively.
The home office billed the branch Investment in Branch 4,000 Marketing Expense 4,000
for its share of common marketing Marketing Expenses 4,000 Home Office 4,000
expenses, P4,000
HO and branch collected Cash 120,000 Cash 80,000
P120,000 and P80,000 on their AR 120,000 AR 80,000
respective account
The home office collected a Cash 10,000 Home Office 10,000
P10,000 branch account IIB 10,000 AR 10,000
The branch collected a P20,000 IIB 20,000 Cash 20,000
home office account AR 20,000 Home Office 20,000
The branch paid a home office Expense 5,000 Home Office 5,000
expense totaling P5,000 IIB 5,000 Cash
5,000
The home office also paid P2,000 IIB 2,000 Exp 2,000
expenses of the branch Cash 2,000 Home Office 2,000
The branch remitted P20,000 Cash 20,000 Home Office 20,000
cash to the home office IIB 20,000 Cash
20,000
The home office sends the branch IIB 2,500 Dep Expense 2,500
debit memo for half-year Acc Dep 2,500 Home Office 2,500
depreciation on the machinery
held by the branch.
The branch adjusted its records at
year-end and took up full year
depreciation on the equipment.
Supplies and inventories were
P2,000 and P20,000 at year-end.
The branch closed its results of
operations.

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