General Procedures: Accounting for Branch Operations
- A branch is accounted for as a separate entity but subject to the control of the home office
- The home office and its branch usually maintain its own accounting books/records and prepares
their own financial statements
o Each records its transactions with outside parties in its own accounting books/records in
the usual manner
o Both the home office and the branch must record transaction with one another in their
respective accounting books/records
▪ These are recorded in intra-company/reciprocal accounts
▪ All accounts are combined for purposes of external financial reporting, so that the
financial statements will represent the company as a single economic entity.
Maintained in the Branch
books of the home current/Investment Noncurrent asset
office in Branch
Reciprocal
Accounts
Maintained in the Home office
Equity
books of the branch current
Home office’s books Branch’s books
Establishment of branch by transferring cash to the branch
Branch current xx Cash xx
Cash xx Home office current xx
Shipment of merchandise by home office to the branch
Branch current xx Shipment from Home office xx
Shipment to Branch xx Home office current xx
Purchase of merchandise from outsiders by the branch
Purchases xx
No entry
Accounts Payable/Cash xx
Formula: Cost of goods sold
Home office Branch
Beginning inventory xx xx
Net purchases xx xx
Shipment to Branch (xx) -
Shipment from Home office - xx
Cost of goods avail. for sale xx xx
Ending inventory (xx) (xx)
Cost of goods sold xx xx
Branch plant asset records – maintained in Branch plant asset records – maintained in
HO’s books Branch’s books
Home office’s books Branch’s books Home office’s books Branch’s books
The home office purchased an equipment for branch’s use
Equipment-Br xx Branch current xx Equipment xx
No entry
Cash xx Cash xx HO current xx
The branch purchased an equipment to be used in its operations
Equipment-Br xx HO current xx Equipment xx
No entry
Branch current xx Cash xx Cash xx
Recording depreciation expense on branch’s equipment
Branch current xx Dep. Exp. xx Dep. Exp. xx
No entry
Acc. Dep. xx HO current xx Acc. Dep. xx
Special Procedures: Merchandise at Billed price
Original cost
Billed Price
Mark-up
imposed by the
HO
Shipment of merchandise to the branch
HO’s books Br.’s books
Branch current Shipments from HO (@BP) xx
Branch current(@BP) xx Home office current (@BP) xx
Shipments to Branch (@OC) xx
Allowance for Overvaluation (MU) xx
Unadjusted Allowance = COGAS-HO
Adjusted Allowance = EI-HO
Realized Markup/Adjustment to AFO = COGS-HO
• Equal to the difference of Branch COGS & True Branch COGS
• Equal to the total of Branch NI & True Branch NI
When true amount is required = use original cost
Combined COGS/NI = use true amounts
“per GAAP” = true amount (original cost)
FIFO system = use most recent markup (SHO)
Original cost = always @ 100%
Special Procedures: Interbranch Transfers
Focuses on transactions between branches – as if they are transacting with the Home Office
Interbranch transfers of CASH – as if branch is remitting(receiving) cash to(from) HO
Interbranch transfers of MERCHANDISE
Excess Freight = Loss on Interbranch Transfers
• Recorded in HO’s books
