Professional Documents
Culture Documents
Advacc Mod1
Advacc Mod1
Advacc Mod1
1 Accounting for
Agencies
As a company grows, it opens additional locations by establishing branches and/or
sales agencies in order to have a wider, systematized and effective outlet for its
products. Both branch and agency are part of the central organization and while they
conduct operations away from their home office, they are not separate legal entity from
the latter.
Currently, instead of establishing a sales agency within, companies engage in
contractual arrangements for services of external or independent sales or marketing
agencies on commission basis in promoting its products to a wider reach. The
discussion under this module would refer to sales agency established within the
company as distinguished from a branch unit.
The main difference of agency and branch lies in their degree of autonomy from home
office. The scope of operation of a sales agency is much limited compared with a
branch. The distinctions between a sales agency and a branch can be summarized
below:
AGENCIES BRANCHES
Carries inventory from Home Office (HO)
No inventories
and from suppliers
Do not approve credit application Approves credit application
Do not deliver merchandise Delivers merchandise
Do not maintain separate books of accounts Maintain separate books of account
A sales agency usually carries a line of samples or merchandise displays but does not
carry stock or inventory of its merchandise while branches normally carries inventory of
merchandise, which may come solely from its home office or partly purchased from
outside suppliers. A sales agency takes order from customers and sends it to home
office for approval. Home office delivers the merchandise directly to the customers and
performs the collection process. On the hand, a branch works as an independent unit
from home office performing all the functions mentioned.
Module 1.1.1 JOURNAL ENTRIES
Home office accounting for agency transactions may be merged with the transactions of
the home office but it is preferred to be accounted for SEPARATELY as follows:
2. Shipments of samples
Illustration 1.1.2
On January 1, 2018, Panda Inc. of Manila establish an agency in Makati. The following
assets were sent to the agency
During January, the agency received sales orders on account of P200,000 that were
approved by the home office. Merchandise shipments made to fill the orders amounted
to P116,000. Home office disbursements chargeable to the agency were as follows:
On January 31, the agency submitted vouchers paid from the agency working fund which
were replenished by the home office as follows:
The inventory of the agency samples as of January 31 was P35,000. Office supplies on
hand were estimated at P300. The agency furniture has an estimated useful life of 3
years.
Required: Journal entries to record the above transactions including the adjusting and
closing entries
Transactions with external parties are recording using the regular accounts while
recording transactions with home office and other branches would involve the use of
intra-company accounts which are eliminated upon preparation of the combined
financial statements.
Branch or
Investment in branch or Home Office Asset
Branch current
Home office or
Home office equity or Branch Liability or Equity
Home office current
Branch Books:
Cash XXXX
Home office XXXX
Branch Books:
Shipment from Home Office XXXX
Home office XXXX
Branch Books:
Home office XXXX
Cash XXXX
Branch Books:
Home office XXXX
Shipment from HO XXXX
5. Fixed asset purchased by HO for branch use (branch maintain Fixed Asset
accounts)
Branch Books:
Fixed asset XXXX
Home office XXXX
Branch Books:
Depreciation expense XXXX
Accum Depr. – Fixed Asset XXXX
7. Fixed Asset purchased by branch for its use (branch maintain FA accounts)
Branch Books:
Fixed asset XXXX
Cash XXXX
8. Fixed asset purchased by Home Office for branch use (Home Office maintain
Fixed Asset accounts)
Branch Books:
--- Memo entry ---
9. Adjusting entry for depreciation (Home Office maintain Fixed Asset accounts)
Branch Books:
Depreciation expense XXXX
Home office XXXX
10. Fixed Asset purchased by branch for its use (Home Office maintain Fixed Asset
accounts)
Branch Books:
Home office XXXX
Cash XXXX
Branch Books:
Accounts Payable XXXX
Home office XXXX
Branch Books:
Home office XXXX
Accounts receivable XXXX
13. Branch expense charged by Home Office
Branch Books:
Expense XXXX
Home office XXXX
Branch Books:
Income summary XXXX
Home office XXXX
Module 1.2.2 FINANCIAL STATEMENTS
At the end of the accounting period, the branch prepares its own financial statements
based on its own operations for internal reporting purposes. These branch financial
statements will be submitted to home office for the preparation of the combined financial
statements for external reporting purposes to present the financial condition and results
of operations of the company as a single entity.
Pro forma statements for the branch and home office is presented below:
Sales XXXX
Cost of sales:
Mdse Invty – Beg. XXXX
Purchases XXXX
Ship. From HO XXXX
Available for sale XXXX
Less Mdse. Invty – End XXXX XXXX
Gross profit XXXX
Expense XXXX
Net profit XXXX
Sales XXXX
Cost of sales:
Mdse Invty – Beg. XXXX
Purchases XXXX
Available for sale XXXX
Less Ship. to branch XXXX
Available for own sale XXXX
Less Mdse. Invty – End XXXX XXXX
Gross profit XXXX
Expense XXXX
Profit from own operation XXXX
Branch profit XXXX
Profit before tax XXXX
Less Income tax XXXX
Profit after tax XXXX
Statement of Financial Position – Branch
Cash XXXX
Accounts receivable XXXX
Merchandise inventory XXXX
Prepaid expense XXXX
Fixed assets XXXX
Less Accum Depr. XXXX XXXX
Total assets XXXX
Cash XXXX
Accounts receivable XXXX
Merchandise inventory XXXX
Prepaid expense XXXX
Branch XXXX
Fixed assets XXXX
Less Accum Depr. XXXX XXXX
Total assets XXXX
Illustration 1.2.3
The 5th Year Company operates a branch in Baguio City. The following are some of the
transactions between home office and branch for the current year:
a. The branch sends a P20,000 checks to home office
b. The home office pays branch expenses of P3,500
c. Home office expenses of P1,200 are paid by the branch
d. Shipments to branch are billed at cost of P32,000
e. The branch returns merchandise costing P15,000 to home office
f. Home office acquires branch furniture for P5,500 cash. Branch fixed assets
are carried on home office books.
g. 10% depreciation is provided on the branch furniture
h. The branch reports a net loss of P2,600
REQUIRED: Prepare journal entries in the books of Home Office and Branch
1.
1. Errors
2. Remittances in transit
3. Shipments in transit
4. Unrecorded items
Home Office
Reconciling Items Branch Account
Account
Debits in the branch account without
corresponding credits in the home office Add
account (not yet taken up in branch books)
Credits in the branch account without
corresponding debits in the home office Deduct
account (not yet taken up in branch books)
Debits in the home office account without
corresponding credits in the branch account Deduct
(not yet taken up in home office books)
Credit in the home office account without
corresponding debits in the branch account Add
(not yet taken up in home office books)
Errors Add/Deduct Add/Deduct
HOME OFFICE AND BRANCH ACCOUNTING
Illustration 1.3.1
On December 31, the branch account on the home office books of the Academia
Company shows a balance of P8,400 and the home office account on the branch
books shows a balance of P9,735. The following data are determined in accounting for
the differences:
a. Merchandise billed at P615 was shipped by the home office to the branch on
December 28. The merchandise is in-transit and has not been recognized
on the books of the branch
b. The branch collected a home office account receivable of P2,500, but failed
to notify the home office of this collection
c. The home office recorded incorrectly the branch net income for November at
P1,125. The branch reported a net income of P1,215
d. The home office was charged P640 when the branch returned merchandise
to home office on December 31. The merchandise is in transit
REQUIRED:
1. Prepare statement of reconciliation for home office and branch accounts
2. Prepare corresponding adjusting entries
Branch Books:
(a) Shipments from Home Office 615
Home Office 615
#
Home Office Books:
(b) Branch 2,500
Accounts Receivable 2,500
#
(c) Branch 90
Branch Income 90
#
(d) Shipment to Branch 640
Branch 640
#
Module 1.4A INTER-BRANCH TRANSACTIONS
Branch activities are normally limited to home office and outsiders. But there are times
when home office will instruct a branch to transact with another branch. Inter-branch
transactions are treated as if transaction went through the home office. The branches
involved will account for the transaction as if they are dealing with the home office
rather than with another branch.
Branch A Books:
Home office XXXX
Cash XXXX
Branch B Books:
Cash XXXX
Home office XXXX
Branch A Books:
Home office XXXX
Ship. from Home Office XXXX
Branch B Books:
Ship. from Home Office XXXX
Home office XXXX
Branch A Books:
Cash XXXX
Home office XXXX
Branch B Books:
Home office XXXX
Accounts receivable XXXX
Module 1.4A.1 Illustration
Home office in Manila shipped merchandise costing P10,000 to Baguio branch and
paid for the freight charges of P650. Baguio branch was subsequently instructed by
home office to transfer the merchandise to Laoag branch wherein Baguio paid for
P200 freight cost. If the shipment was made directly from Manila to Laoag, the
freight cost would have amounted to P700.
If merchandise shipments to branch are billed at more than cost, entries to record
transfers of merchandise at prices in excess of cost do not change the reciprocal
relationship between the home office and branch accounts but they do affect the
relationship between the home office and branch shipment accounts. The shipment to
branch account is recorded at COST while shipment from home office is recorded at
TRANSFER PRICE or BILLED PRICE.
Home office records the excess of transfer price or billed price over cost called mark-up
through an inventory account ALLOWANCE FOR MARK-UP IN BRANCH INVENTORY
which defer recognition of profits until the inventory is sold to external parties by the
branches.
Branch Books:
Home office records an adjusting entry to realized mark-up and correct the net income
reported by the branch through the temporary account Branch Income.
Home office billed its branch at P251,000 which is 125% of cost. At the end of the
period branch has P117,500 ending inventory which consist of merchandise from
home office at P90,000 and P27,500 from outside purchases.
REQUIRED: Compute for amount of adjustment for Allow. For Mark-up in Branch
Inventory.
Branch Books:
MNO Electronics routinely transfer inventory to its branch operation located in another
city. In 2015, MNO’s home office sold inventory costing P480,000 to its branch for
P600,000. The branch sold 45% of the inventory in 2015 for P360,000 and the
remaining 55% in 2016 for P590,000. In 2016, MNO Electronics transferred P300,000
of inventory to its branch for P450,000. The branch sold one-third of the inventory in
2016 for P280,000 and two-thirds in 2017 for P560,000.
REQUIRED: Prepare the journal entries to be recorded during 2015, 2016 and 2017
by MNO Electronics’ (1) home office and (2) branch to the inventory transactions.
2015
Home office Books:
Branch Books:
Branch Books:
2017
Branch Books:
The following are the transactions of the home office and its Makati branch during April:
a. Purchases made by the home office P120,000 of which P50,000 were shipped to
Makati while cash transfers to branch amounted to P25,000.
b. Freight charges paid by home office for shipments to branch P1,200
c. Account sales made by the home office and the branch are P100,000 and P60,000
respectively. Collections was 80% of the sales.
d. Expenses paid by the home office are: salaries P22,000, advertising P10,000 and
utilities P5,000. Expenses paid by the branch are: salaries P3,000, Utilities P1,500 and
supplies P2,000
e. Furniture bought for cash by home office for the branch P15,000. Home office records
all properties and charges 10% depreciation. Properties for home office use amounted
to P235,000.
f. Home office charged 50% of the advertising to the branch.
g. Cash transfers to home office P18,000
REQUIRED:
a) Prepare journal entries to be recorded in the Home Office and Branch Books
b) Additional information:
c) Assume it is the end of the accounting period, prepare closing entries for Home Office and
Branch Books
ACCOUNTING FOR AGENCIES
The Thing Corporation opens an agency in Baguio City. The following are the
transactions for June 2018:
Samples P60,000
Advertising materials 35,000
b. Home office sends a check for P30,000 to the agency for its working fund
c. The home office fills up orders sent by the agency for P250,000 worth of
merchandise with selling price at P330,000
g. The agency samples inventory at the end of June is 75% of the quantity shipped
in (a)
h. The agency has used 30% of the advertising materials shipped by the home office
in (a)
Required: Journal entries to record the above transactions including the adjusting and
closing entries