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Chapter 9 Home Office, Branch and Agency Accounting-PROFE01

This document discusses accounting for home office, branch, and agency transactions. It defines branches as separate business units that maintain their own books, while agencies do not have separate books. The document outlines how to account for transactions in the home office and branch books, reconcile interoffice accounts, eliminate reciprocal accounts in combined financial statements, and handle shipments between the home office and branch when billed above cost.

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Steffany Roque
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499 views5 pages

Chapter 9 Home Office, Branch and Agency Accounting-PROFE01

This document discusses accounting for home office, branch, and agency transactions. It defines branches as separate business units that maintain their own books, while agencies do not have separate books. The document outlines how to account for transactions in the home office and branch books, reconcile interoffice accounts, eliminate reciprocal accounts in combined financial statements, and handle shipments between the home office and branch when billed above cost.

Uploaded by

Steffany Roque
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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PROFE01-ACCOUNTING FOR SPECIAL TRANSACTIONS

Chapter 9 Home office, Branch and Agency Accounting

Learning Objectives

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).

Branch and Agency distinguished

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PROFE01-ACCOUNTING FOR SPECIAL TRANSACTIONS

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 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.

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PROFE01-ACCOUNTING FOR SPECIAL TRANSACTIONS

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.

Home office’s books

Branch’s books

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PROFE01-ACCOUNTING FOR SPECIAL TRANSACTIONS

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.

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.

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PROFE01-ACCOUNTING FOR SPECIAL TRANSACTIONS

• When combined financial statements are prepared, the markup on shipments is


eliminated. This is necessary to restate the cost of goods sold and ending inventory of
the branch to their original costs.

To know more information about – Chapter 9- Accounting for an agency

PLEASE CLICK THE LINK: https://www.youtube.com/watch?v=r25OesHIb60

To know more information about – Chapter 9- Reciprocal accounts

PLEASE CLICK THE LINK: https://www.youtube.com/watch?v=-gUnSMJlRvY

Reference:

TEXTBOOK-Millan, Accounting for Special Transactions (2018), Philippines: Bandolin


Enterprise

WEBSITE REFERENCES-http://www.iasplus.com/

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