ACCOUNTING FOR SPECIAL

TRANSACTIONS
(Advanced Accounting 1)

LECTURE AID

2018

ZEUS VERNON B. MILLAN

Chapter 11
Home office, Branch and Agency
Accounting

Learning Competencies
• Account for home office and branch
transactions in each of the home office’s and
branch’s books.
• Reconcile interoffice accounts.
• Prepare individual and combined financial
statements of the home office and its
branch(es).
ACCOUNTING FOR SPECIAL TRANSACTIONS (Advanced Accounting 1) - (by:
MILLAN)
Branch and Agency distinguished

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Branch and Agency distinguished (Continuation)

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Accounting for an agency

• Since an agency does not maintain its own separate accounting

books, all of its transactions are recorded in the books of the home
office. The agency maintains a simple record (e.g., a log book) to
record its cash receipts and cash disbursements, similarly to a petty
cash system.

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Accounting for branch operations

• A branch is accounted for as a separate business unit. The branch

maintains its own records and prepares its own financial statements.
However, the branch’s financial statements are combined with the
home office’s financial statements when preparing general purpose
financial statements.
• Combined financial statements are prepared by:
1. Adding together similar items of assets, liabilities, income
and expenses, and
2. Eliminating reciprocal accounts.
ACCOUNTING FOR SPECIAL
TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Reciprocal accounts

1. “Investment in branch” account (or ‘Branch current’

account) - The home office maintains this account in its books to
account for its investments in the branch.

2. “Home office” account (or ‘Home office current’ account) - The

branch maintains this account in its books to account for
investments received from the home office.

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Home office’s books

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Branch’s books

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Combined financial statements

• The home office and its branch are viewed as a single reporting
entity for external reporting. Thus, the individual financial
statements of the home office and the branch need to be combined
when preparing general purpose financial statements.

• Combined financial statements are prepared simply by: adding

together similar items of assets, liabilities, income and
expenses, and eliminating the reciprocal accounts.

ACCOUNTING FOR SPECIAL

TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
Shipments to branch billed at a price above cost

• Billings to the branch may be made at amounts above cost, or cost

plus an arbitrary percentage, also known as the “billed price.”
Information on actual costs is withheld from the branch. Thus, upon
receipt of shipments, the branch records the merchandise received
at the billed price, rather than at cost.
• When combined financial statements are prepared, the markup on
shipments are eliminated. This is necessary to restate the cost of
goods sold and ending inventory of the branch to their original
costs.
ACCOUNTING FOR SPECIAL
TRANSACTIONS (Advanced
Accounting 1) - (by: MILLAN)
 APPLICATION OF CONCEPTS
 

PROBLEM 2: FOR CLASSROOM DISCUSSION

ACCOUNTING FOR SPECIAL TRANSACTIONS (Advanced Accounting 1) - (by:

MILLAN)
 OPEN FORUM
QUESTIONS????
REACTIONS!!!!!

ACCOUNTING FOR SPECIAL TRANSACTIONS (Advanced Accounting 1) - (by:

MILLAN)
 END
ACCOUNTING FOR SPECIAL TRANSACTIONS (Advanced Accounting 1) - (by:
MILLAN)