Richard J.

Lamagna
BSA- 2793-22

HOME OFFICE AND BRANCH ACCOUNTING

• A firm or company's home office serves as its main office. In order to service more
clients while it is in a prosperous position, it typically opens new sales outlets, either
branches or sales agencies.
• A branch is an independent corporation that operates within the constraints of
a corporate policy established by its headquarters. Since a sales agency solely works on
behalf of its main office, it differs from this.

Sales Agency vs Branch

Sales Agency
Not a separate accounting entity.
Does not carry inventory to fill customers’
orders but displayed merchandise as
samples subject to depreciation.
Branch
Separate accounting entity for internal
reporting.
Carries inventory to fill customers’ orders
and provides services similar with the
home office.

Customers’ orders are forwarded to the Processes customers’ orders.

home office for processing.

Customer remits payment directly to the Makes own collection.

home office.

Has its own assets and liabilities. It also

Doesn’t have its own assets and liabilities.
It only holds a revolving cash fund subject
to replenishment when depleted.
Maintains only a cash record for its
revolving cash fund.
generates or incurs own income and
expenses.
Has its own complete accounting records
and financial statements which are
combined with the home office’s FS for
external reporting purposes.
 Accounting for Branch operations:
1. Recording the transactions between the home office and the branch 2.
Preparing the combined FS of the home office and the branch

HOME OFFICE BRANCH

Maintains Investment in Branch Maintains Home office account in its

account in its books as an asset. books as an equity.
Investment in Branch Home Office

Assets Assets
Assets received Assets received from
transferred to from branch transferred to home office
Home office
branch
Liabilities and
Liabilities and expenses
Loss of branch Loss of branch
incurred/ paid
expenses
by home
incurred/ paid office
by home office
Profit of
on behalf of branch
branch

Profit of
branch

Note: Basically, the journal entry in the book of branch is the reciprocal of Investment in Branch account.
Debits/Credits on IIB account has corresponding debits/credits on HO account. Therefore, the balances of
the two accounts must be equal at any given point of time.
 Journal Entries: Home office books Branch books

Initial Investment in branch xx Cash xx

Investment
Cash/ various accounts xx Home office xx

Property carried in NO ENTRY PPE xx

branch books-
Acquired by Cash xx
Branch
Depreciation expense xx

Acc Depreciation xx

Property carried in
HO books- Acquired PPE xx Home office xx
by Branch
Investment in Branch xx Cash xx

Investment in Branch xx Depreciation expense xx

Acc Depreciation xx Home office xx

Property carried in PPE xx

branch books-
Acquired by Investment in Branch xx Home office xx
Home office
Cash xx Depreciation expense xx

NO ENTRY Acc Depreciation xx

Property carried in
HO- Acquired by HO PPE xx NO ENTRY
but used by Branch
Cash xx

Investment in Branch xx Depreciation expense xx

Acc Depreciation xx Home Office xx

Note: The one who carries the property in the books records the Accumulated Depreciation. While
the one who maintains its physical possession and use records the Depreciation Expense.
 Investment in branch xx Shipments from HO xx
Transfer of
inventories-freight Shipments to branch xx Freight-in xx
paid by HO
Cash xx Home office xx

Transfer of Investment in branch xx Shipments from HO xx

inventories- freight
paid by Branch Shipments to branch xx Freight-in xx

Cash xx

Home office xx

Note: There are 3 methods how Home office billed its Branch on merchandises transferred: a) at cost;
b) at billed price; and c) at branch’s retail selling price (mark-up based on billed price)

Sales of Branch NO ENTRY

Cash/ AR xx

Sales xx

Remittance to Home Cash xx Home Office xx

Office
Investment in branch xx Home office xx

Expense incurred
Expense xx Expense xx

Cash xx Cash xx

Investment in Branch xx Expenses xx

Home office allocates
expense to Branch Expense xx Home office xx