ACCOUNTING FOR BRANCH

OPERATIONS

PREPARED BY: AMALIA RIZKI

(FOR ENGLISH CLASS)

BRANCHES

BRANCHES
Identifiable

location within business

entity for which separate accounting
records are maintained .
Separate accounting entities, but
not separate legal entities.
Parallel system of independent
business except in the manner of
accounting for ownership equities
and in recording between branches
and the main office of the
enterprise.

Branch accounting
systems
Segmenting

(separating)
accounting system for HO and B
operations.

HO records

B records

Central
accounting
unit

Adjunct
accounting
systems

Branch accounting
systems

Separate HO and branch

system:
Used

for internal purpose.

Have to be combined into a single FS
for external reporting requirements.

Branch accounting
systems
Combining process:
Similar

to P & S consolidating process.

Eliminate reciprocal accounts.
Combine Non reciprocal accounts.
Eliminate Unrealized profit from
internal transfer.

Transactions between HO
and the branch
Assume:
Expando corporation creates a branch in Splinter,
Montana, by trnasferring cash of $5,000 and
equipment with a cost $10,000 to the branch
manager.
HO Books
Splinter
branch
Cash

Branch Books

$15,000
Cash
$ 5,000 Equipment
10,000
HO

$ 5,000
10,000
$15,000

Branch account on the HO represent the

Equipment
investment of HO in branch net assets.
HO account in the branch books is equity

Transactions between HO
and the branch

Branch account on the HO represent

the investment of HO in branch net
assets.

HO account in the branch books is

equity of HO in branch net asset.

HO

account and Branch account:

r-e-c-i-p-r-o-c-a-l account.

Transactions between HO
and the branch
Assume:
(merchandise transfers)
Expando corporation ships merchandise to
Splinter branch at its $8,000 HO cost.
HO Books
Splinter
branch
Shipment
to
SB

$8,000
$ 8,000

Branch Books
Shipment
from HO
HO

$ 8,000
$8,000

Transactions between HO
and the branch

Shipments to branch and

shipments from HO are also
reciprocal account .

Illustration of HO and Branch

Accounting:

JS corporation created a new branch outlet

in Bee, Nebraska. The transactions of the
Bee branch during the year are follows:
1. Received cash of $20,000 from HO.
2. Purchased equipment with five year life
for $10,000 cash.
3. Received merchandise shipments from
HO at the $16,000 HO cost.
4. Purchased merchandise from outside
suppliers for $4,000 cash.
5. Sold merchandise for $30,000 cash.

Illustration of HO and Branch

6. Returned $1,000 of the merchandise
Accounting:

acquired from the HO

7. Paid expenses as follows:
salaries
$6,000
utilities
1,000
rent expense
3,000
other expense 2,000
8. Remitted $15,000 to the HO.
9. Salaries payable at year-end were $1,000
and depreciation for the year was $2,000.
10. Branch inventories at year-end consisted
of $1,000 merchandise acquired from
outside suppliers & $5,000 acquired from
HO.

JOURNAL
ENTRIES

T
R
1.

HO BOOKS
BB
Cash

BB BOOKS

20,00
Cash
0 20,00
HO
0

2.

3.

Equipment
Cash
BB
Shipments
to BB

16,00
Shipments from
0 16,00 HO
0
HO

4.
5.

Shipments to BB
BB

1,000

16,00
0
4,000

Cash

30,00
0

HO
1,000

10,00
0

Purchases
Cash
Sales

6.

20,00
0

Shipments
from
HO

20,00
0
10,00
0
16,00
0
4,000
30,00
0

1,000
1,000

T
R

HO BOOKS

9.

BB BOOKS
Adj. entries
Salaries exp
salaries
payable
Depreciation
exp-equipment

1,000
1,000
2,000
2,000

accumulated
depreciationEquipment
10 Adj. entries
.
BB branch
BB profit

Closing entries
2,000
Sales
2,000 Inventory
Shipment fr
HO
purchase
salaries exp
depreciation
exp

30,00
0
6,000

15,00
0
4,000
7,000
2,000
1,000

Cost of Sales Computation

HO

BB

Inventory Jan 1
Purchase
Shipment to branch
Shipment from HO

85,000
150,000
(15,000)

Goods available for

sale
Inventory Dec 31

220,000
(80,000)

19,000
(6,000)

Cost of Sales

140,000

13,000

4,000
15,000

WORKING
PAPERS

MERCHANDISE SHIPMENTS
IN EXCESS OF COST
Shipments

to Branch Recorded at

Cost
Illustration:
SFM HO ships merchandise that
costs $100,000 to its Tampa
branch at 20 % mark up based on
cost.
HO BOOKS
TB BOOKS
Tbranch
Shipments to
TB
Loading in
TB

120,00
0

Shipments from
100,0 HO
00
HO
20,00

120,00
0

120,00
0

MERCHANDISE SHIPMENTS
IN EXCESS OF COST

Assume the following account balances

appear on the books of SFM HO and branch
at December 3, before adjusting entries
HO Books
T branch
Shipments to TB
Loading in TB inventory

$200,000 debit
100,000 credit
20,000credit

TB Books
Sales
Shipments from HO
Expenses
HO

$160,000 credit
120,000 debit
30,000 debit
200,000 credit

MERCHANDISE SHIPMENTS
IN EXCESS OF COST

If TB has $12,000 inventory at

transfer prices on December 31,
it reports income for the period
$22,000 (sales of $160,000 less
cost of sales of $108,000, and
HOother
BOOKS expenses of $30,000)
TB BOOKS

Adj. entries
TB branch
TB profit
Loading in TB
inventory
TB profit

Closing entries
22,00
Sales
0 22,00 Inventory
0
Shipment fr
HO
18,00
Expenses
0 18,00
HO
0

160,0
00
12,00
0

120,00
0
30,000
22,000

Computation of Income
Sales
Shipments to branch (at
cost)
Less: Inventory (at cost)
Gross profit
Other expenses
Branch income

160,000
100,000
10,000

90,000
70,000
30,000
$40,000

Shipments to Branch
Recorded at Billing Prices

SFMs shipments to T branch could

have been recorded at billing
HO BOOKS
prices as follows:
Tbranch
Shipments to TB

120,000
120,000

year-end adjusting
entries are
HO BOOKS
Shipments
to TB
20,000
needed
Loading in Tbranch
inventory
Loading in Tbranch inventory
T branch profit

20,000

18,000
18,000

Freight Costs on
Shipments

Assume that merchandise is

shipped from HO to its branch at
125% of $10,000 HO cost and
that the HO pays $500 freigt cost.

HO BOOKS
Branch
Shipments to
B
Loading in
B
inventory
Cash

13,000

TB BOOKS
Shipments from
10,00 HO
0 Freight in on HO
shipments
2,500
HO
500

12,500
500
13,000

Freight Costs on
Shipments

If a half of merchandise remains

unsold at year-end, cost of
branch sales in reported at
$6,500, and the branch inventory
is priced at its $6,250 home
office cost, plus $250 freight in.

Freight Costs on
Shipments

Assume that branch pays $250 to

return half the merchandise to
the home office.

BRANCH BOOKS
HO
Shipments from
HO
Freight in on
HO
shipments
Cash

6,75
0

HO BOOKS
Shipments to B
6,250 Loading in b
inventory
250 Loss on excessive
250 freight charges
Branch

5,000
1,250
500
6,750