ACCOUNTING FOR BRANCH ACCOUNTING FOR BRANCH OPERATIONSOPERATIONS

PREPARED BY: AMALIA RIZKI(FOR ENGLISH CLASS)

BRANCHESBRANCHES

BRANCHESBRANCHESIdentifiable 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 Branch accounting systemssystemsSegmenting (separating)

accounting system for HO and B operations.

HO recordsCentral

accounting unit

B records Adjunct accounting

systems

Branch accounting Branch accounting systemssystemsSeparate HO and branch system:

Used for internal purpose. Have to be combined into a single FS

for external reporting requirements.

Branch accounting Branch accounting systemssystemsCombining process: Similar to P & S consolidating process.

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

internal transfer.

Transactions between HO Transactions between HO and the branchand 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 Branch BooksSplinter branch Cash Equipment

$15,000 $ 5,00010,000

CashEquipment HO

$ 5,000 10,000

$15,000• 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.

Transactions between HO Transactions between HO and the branchand 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 Transactions between HO and the branch and the branch (merchandise transfers)(merchandise transfers)

Assume:Expando corporation ships merchandise to Splinter branch at its $8,000 HO cost.

HO Books Branch BooksSplinter branch Shipment to SB

$8,000

$ 8,000

Shipment from HO HO

$ 8,000

$8,000

Transactions between HO Transactions between HO and the branchand the branch

• Shipments to branch and shipments from HO are also reciprocal account .

Illustration of HO and Branch Illustration of HO and Branch Accounting: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 Illustration of HO and Branch Accounting:Accounting:6. Returned $1,000 of the merchandise

acquired from the HO7. Paid expenses as follows:

salaries $6,000utilities 1,000rent expense 3,000other 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.

JOURNALENTRIES

TR

HO BOOKS BB BOOKS

1. BB Cash

20,000 20,00

0

Cash HO

20,000 20,00

0

2. Equipment Cash

10,000 10,00

0

3. BB Shipments to BB

16,000 16,00

0

Shipments from HO HO

16,000 16,00

0

4. Purchases Cash

4,0004,000

5. Cash Sales

30,000 30,00

0

6. Shipments to BB BB

1,0001,000

HO Shipments from HO

1,0001,000

7. Salaries expUtilities expRent expOther exp Cash

6,0001,0003,0002,000

12,000

8. Cash BB

15,000 15,00

0

HO Cash

15,000 15,00

0

TR

HO BOOKS BB BOOKS

9. Adj. entriesSalaries exp salaries payable

Depreciation exp-equipment accumulated depreciation- Equipment

1,000

2,000

1,000

2,000

10.

Adj. entriesBB branch BB profit

2,0002,000

Closing entriesSalesInventory Shipment fr HO purchase salaries exp depreciation exp utilities exp rent exp other exp HO

30,000

6,000 15,000

4,0007,0002,0001,0003,0002,0002,000

Cost of Sales Computation

HO BB

Inventory Jan 1PurchaseShipment to branchShipment from HO

85,000150,000(15,000)

4,000

15,000

Goods available for saleInventory Dec 31

220,000(80,000)

19,000(6,000)

Cost of Sales 140,000 13,000

WORKINGPAPERS

MERCHANDISE SHIPMENTS MERCHANDISE SHIPMENTS IN EXCESS OF COSTIN EXCESS OF COSTShipments to Branch Recorded at

CostIllustration: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 inventory

120,000 100,0

00

20,000

Shipments from HO HO

120,000 120,00

0

MERCHANDISE SHIPMENTS MERCHANDISE SHIPMENTS IN EXCESS OF COSTIN 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 branchShipments to TBLoading in TB inventory

$200,000 debit100,000 credit

20,000credit

TB Books

SalesShipments from HOExpensesHO

$160,000 credit120,000 debit

30,000 debit200,000 credit

MERCHANDISE SHIPMENTS MERCHANDISE SHIPMENTS IN EXCESS OF COSTIN EXCESS OF COSTIf 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 other expenses of $30,000)HO BOOKS TB BOOKS

Adj. entriesTB branch TB profit

Loading in TB inventory TB profit

22,000

18,000

22,000

18,000

Closing entriesSalesInventory Shipment fr HO Expenses HO

160,000

12,000

120,000

30,00022,000

Computation of IncomeComputation of IncomeSalesShipments to branch (at cost)Less: Inventory (at cost) Gross profitOther expenses Branch income

100,000 10,000

160,000

90,00070,000

30,000$40,000

Shipments to Branch Shipments to Branch Recorded at Billing PricesRecorded at Billing PricesSFM’s shipments to T branch could

have been recorded at billing prices as follows:

year-end adjusting entries are needed

HO BOOKS

Tbranch Shipments to TB

120,000120,000

HO BOOKS

Shipments to TB Loading in Tbranch inventoryLoading in Tbranch inventory T branch profit

20,000

18,00020,000

18,000

Freight Costs on Freight Costs on ShipmentsShipmentsAssume 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 TB BOOKS

Branch Shipments to B Loading in B inventory Cash

13,00010,00

0

2,500500

Shipments from HOFreight in on HO shipments HO

12,500

50013,000

Freight Costs on Freight Costs on ShipmentsShipmentsIf 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 Freight Costs on ShipmentsShipmentsAssume that branch pays $250 to

return half the merchandise to the home office.

BRANCH BOOKS HO BOOKS

HO Shipments from HO Freight in on HO shipments Cash

6,750 6,250

250250

Shipments to BLoading in b inventoryLoss on excessive freight charges Branch

5,0001,250

5006,750