Home Office,

Branch, and
Agency
Accounting
Advanced Accounting
TOPICS TO DISCUSS
Day 1
01  Agency vs Branch
 Agency Accounting
 Accounting for Transactions
 Reciprocal Accounts

Day 2
02  Inter office transfers at above cost
 Inter-branch Transfers
1
Agency vs
Branch
ADVANCED ACCOUNTING
 Agency vs Branch
Agency Branch
Financial Records Cash and sales books only; no Complete set of financial
financial statements statements and schedules
Size of entity and human resource Relatively smaller; composed of a Relatively bigger; composed of
few sales agents managers, supervisors, and rank-
and-file employees
Autonomy All decisions are made by the home Operating decisions are delegated
office to the branch
Accounting Entity Not considered to be a Considered to be a distinct
separate accounting entity accounting entity
Practice Problem–Agency Accounting:
On October 1, 2015, the Eastwood Main Office established a sales agency in Pasay City. The following information is made
available to you:

• The main office sent samples of its merchandise amounting to P42,000 and a working fund amounting to P360,000 was
established. The samples sent were intended to last until June 1, 2016
• During the first two months of operations, the agency transmitted to the home office sale of goods costing P1,458,000, but
the home office were not able to fill-up 25% of the said transmitted sales orders.
• Collections from customers amounted to P369,705, net of 2% sales discount.
• Payments made by the agency during October and November were as follows: annual rent of P288,000, advertising
expense worth P28,000 and utilities amounting to P36,000.
• The agency also purchased an equipment worth P45,000 which will be depreciated at 20% per annum
• The gross profit rate on sales agency order is 20% of sales

Net income of the agency for the two months ended November 30, 2015 is:
Solution
Sales ₱ 1,366,875
Sales Discounts ₱ (7,545)
Net Sales ₱ 1,359,330
COGS ₱ (1,093,500)
Gross Profit ₱ 265,830
Merchandise Amortization ₱ (10,500)
Annual Rent ₱ (48,000)
Advertising Expense ₱ (28,000)
Utilities Expense ₱ (36,000)
Depreciation Expense ₱ (1,500)
Net Income ₱ 141,830
2
Home Office and
Branch Accounting
for Transactions
ADVANCED ACCOUNTING
 THEORY

● Remember that the home office and branch have separate

financial statements. To record the flow of transactions
between the Home Office and the Branch, we use reciprocal
accounts.
 The Home Office records “Investment in Branch” while the
HOME OFFICE Branch records “Home Office”
AND BRANCH  The Investment in Branch and Home Office account should always
be equal
ACCOUNTING 

Investment in Branch = ASSET
Home Office = EQUITY
● These reciprocal accounts are then eliminated at year end
because the separate financial statements of the Home Office
and Branch are combined resulting to a “Combined Financial
Statement”
 Branch
 Internal Purposes = Separate Accounting Entity
 External Purposes = Single Reporting Entity that is combines with the Home
Office; hence no separate legal existence
 Accounting for Branch Operations
• Initial Investment
Home office Establishes a branch for an initial investment of P1,000,000 in cash
HOME OFFICE BRANCH
Investment in Branch………....................1,000,000 Cash………................................................1,000,000
Cash…………………………………………….. ……..1,000,000 Home Office…………………………………………..1,000,000
 THEORY

● Always check who BENEFITS and who RECORDS it in the

BOOKS
Accounting for ○ The one who “BENEFITS” records the EXPENSE = Matching
Concept
Purchase of ○ The one who “RECORDS” the PPE records the
ACCUMULATED DEPRECIATION = Asset – Contra Asset
Relationship
PPE ○ If the one who Benefits is not = to the one who Records
the subsequent depreciation will affect the reciprocal
accounts
○ If the one who PAYS is not = to the one who Records, the
assumption is that the BRANCH BENEFITS from the PPE
Accounting for Branch Operations
• Property Carried in Branch Books – Branch Acquisition
Branch acquires equipment for P400,000 to be carried in the branch books
HOME OFFICE BRANCH
Equipment 400,000
Cash 400,000

Depreciation – Subsequent Entries: Useful life of the Equipment is 10 years, no salvage Value

HOME OFFICE BRANCH

Depreciation Expense 40,000
Accumulated Depreciation 40,000
 Accounting for Branch Operations
• Property Carried in Home Office Books – Branch Acquisition
Branch acquires equipment for P400,000 to be carried in the Home Office books
HOME OFFICE BRANCH
Equipment – Branch 400,000 Home Office 400,000
Investment in Branch 400,000 Cash 400,000

Depreciation – Subsequent Entries: Useful life of the Equipment is 10 years, no salvage Value

HOME OFFICE BRANCH

Investment in Branch 40,000 Depreciation Expense 40,000
Accumulated Depreciation 40,000 Home Office 40,000
 Accounting for Branch Operations
• Property Carried in Branch Books– Home Office Acquisition
Home Office acquires equipment for P400,000 to be carried in the Branch books
HOME OFFICE BRANCH
Investment in Branch 400,000 Equipment 400,000
Cash 400,000 Home Office 400,000

Depreciation – Subsequent Entries: Useful life of the Equipment is 10 years, no salvage Value

HOME OFFICE BRANCH

Depreciation Expense 40,000
Accumulated Depreciation 40,000
 Accounting for Branch Operations
• Property Carried in Home Office Books – Home Office Acquisition
Home Office acquires equipment for P400,000 to be carried in the Home Office books. But use and
possession will be given to the branch
HOME OFFICE BRANCH
Equipment 400,000
Cash 400,000

Depreciation – Subsequent Entries: Useful life of the Equipment is 10 years, no salvage Value

HOME OFFICE BRANCH

Investment in Branch 40,000 Depreciation Expense 40,000
Accumulated Depreciation 40,000 Home Office 40,000
 Accounting for Branch Operations
• TRANSFER OF INVENTORIES
A.) Home Office transfers inventory worth P80,000. Freight paid by the branch is P6,000
HOME OFFICE BRANCH
Investment in Branch 80,000 Shipments from Home Office 80,000
Inventory 80,000 Home Office 80,000
Freight In 6,000
Cash 6,000

B.) Home Office transfers inventory worth P80,000. Freight paid by the Home Office is P6,000
HOME OFFICE BRANCH

Investment in Branch 86,000 Shipments from Home Office 80,000

Inventory 80,000 Home Office 80,000
Cash 6,000 Freight In 6,000
Home Office 6,000
Accounting for Branch Operations
• Purchase of Inventories by Branch
Branch purchases inventory worth 100,000
HOME OFFICE BRANCH
Inventory 100,000
Cash 100,000
Accounting for Branch Operations
• Revenue
Branch makes total sales of P500,000 on account; Cost of Goods sold = 200,000
HOME OFFICE BRANCH
Accounts Receivable 500,000
Revenue 500,000
Cost of Goods Sold 200,000
Inventory 200,000
 Accounting for Branch Operations
• Collection of A/R
A.) Branch Collects cash of 200,000 from their accounts receivable
HOME OFFICE BRANCH
Cash 200,000
A/R 200,000

B.) Home Office collects cash of 200,000 from the accounts receivable of their Branch
HOME OFFICE BRANCH
Cash 200,000 Home Office 200,000
Investment in Branch 200,000 Accounts Receivable 200,000
 Accounting for Branch Operations
• Remittance
Branch remits 50,000 cash to Home Office
HOME OFFICE BRANCH
Cash 50,000 Home Office 50,000
Investment in Branch 50,000 Cash 50,000
 Accounting for Branch Operations
• Expenses
A.) Branch incurs utilities expense of 20,000
HOME OFFICE BRANCH
Utilities Expense 20,000
Cash / A/P 20,000

B.) Home Office allocates 50,000 worth of maintenance expense to the branch
HOME OFFICE BRANCH
Investment in Branch 50,000 Administrative Expense 200,000
Administrative Expense 50,000 Home Office 200,000
3
Reciprocal Accounts
Reconciliation
ADVANCED ACCOUNTING
 THEORY

● Remember, the “INVESTMENT IN BRANCH” and

“HOME OFFICE” accounts should always be
Reconciliation on equal
● However, there are times at year end where the
Reciprocal two do not agree with each other, in these cases
Accounts reconciliation procedures must be performed.
● Reconciliation items includes:
○ Transfer in-transit
○ Unrecorded Debit and Credit Memos
○ Errors
Practice Problem – Reconciliation
At December 31, 2019, the home office shows a balance of P89,000 in its “Investment in Branch - Jett” account
while the Jett branch shows a balance of P49,000 in its “Home Office” account. The following information has
been gathered:
a. The Home office shipped merchandise worth P20,000 to the Jett Branch during December of 2019 which the latter only received
and recorded on January 2020
b. A cash remittance of P40,000 from Jett Branch was not recorded by the Home Office
c. The Home office allocated P5,000 overhead expense to the Jett Branch which was recorded by the latter twice
d. The Jett Branch sent by mistake a credit memo amounting to P7,000 to the home office. The home office did not record it
e. The Home office charged Jett branch for a P15,000 shipment which was actually sent to Viper Branch and retained by the latter
f. The Home office charged Viper Branch for a P16,000 shipment which was actually sent to Jett Branch. Jett Branch retained the
shipment
g. The debit posting for a cash remittance to the home office amounting to P7,000 was not recorded by the Jett Branch
h. The credit posting for a credit memo received from the home office representing collections of the home office of the branch’s
account receivable amounting to P5,000 was not recorded by the Jett Branch

Compute for the adjusted balance of the reciprocal account

Solution
IIB HO - Cur
Unadj Balance ₱ 89,000 ₱ 49,000
a ₱ 20,000
b ₱ (40,000)
c ₱ (5,000)
d ₱ (7,000)
e ₱ (15,000)
f ₱ 16,000
g ₱ (7,000)
h
Adj Balance ₱ 50,000 ₱ 50,000
Practice Problem – Reconciliation
At December 31, 2019, the home office shows a balance of P89,000 in its “Investment in Branch - Jett” account
The branch’s “Home Office – Current” account is not in conformity with its reciprocal account. The following
information has been gathered:
a. The Home office shipped merchandise worth P20,000 to the Jett Branch during December of 2019 which the latter only received
and recorded on January 2020
b. A cash remittance of P40,000 from Jett Branch was not recorded by the Home Office
c. The Home office allocated P5,000 overhead expense to the Jett Branch which was recorded by the latter twice
d. The Jett Branch sent by mistake a credit memo amounting to P7,000 to the home office. The home office did not record it
e. The Home office charged Jett branch for a P15,000 shipment which was actually sent to Viper Branch and retained by the latter
f. The Home office charged Viper Branch for a P16,000 shipment which was actually sent to Jett Branch. Jett Branch retained the
shipment
g. The debit posting for a cash remittance to the home office amounting to P7,000 was not recorded by the Jett Branch
h. The credit posting for a credit memo received from the home office representing collections of the home office of the branch’s
account receivable amounting to P5,000 was not recorded by the Jett Branch

Compute for the unadjusted balance of the “Home Office – Current Account”
Solution
IIB HO - Cur
Unadj Balance ₱ 89,000 ₱ 49,000
a ₱ 20,000
b ₱ (40,000)
c ₱ (5,000)
d ₱ (7,000)
e ₱ (15,000)
f ₱ 16,000
g ₱ (7,000)
h
Adj Balance ₱ 50,000 ₱ 50,000
4
Shipments to Branch
at Above Cost
ADVANCED ACCOUNTING
Problem #1 Basic Transactions
The Following transactions were made:
a) The Home Office transfers inventory worth P100,000 to the branch. Shipments are billed at 120% of cost
b) Home Office transfers inventory worth P200,000 to the branch. Shipments to the branch are billed at
120% of cost. Freight paid by the home office is P10,000
c) Home office transfers inventory worth P80,000 to the branch. Shipments to the branch are billed at 120%
of cost. Freight paid by the branch is P6,000
d) Branch purchases inventory worth P40,000 on account, from outside party. Freight paid by the branch is
P2,000
e) Branch makes total sales of P500,000 on account
f) Branch incurs total expenses of P100,000. P20,000 of which were allocated by the home office to the
branch
g) The ending inventory of the branch amounts of P250,000; P240,000 of which represent shipments from
the Home Office while the P10,000 are from purchases from outside parties

Journalize the transactions and compute for the Individual Profit of the Branch and the True Profit of the
Branch
 Accounting for Branch Operations
• The Home Office transfers inventory worth P100,000 to the branch. Shipments are billed at 120%
of cost

HOME OFFICE BRANCH

Investment in Branch 120,000 Shipments from Home Office 120,000
Shipments to Branch 100,000 Home Office 120,000
Allowance for mark up 20,000
 Accounting for Branch Operations
• Home Office transfers inventory worth P200,000 to the branch. Shipments to the branch are
billed at 120% of cost. Freight paid by the home office is P10,000

HOME OFFICE BRANCH

Investment in Branch 250,000 Shipments from Home Office 240,000
Shipments to Branch 200,000 Freight In 10,000
Allowance for mark up 40,000 Home Office 250,000
Cash 10,000
 Accounting for Branch Operations
• Home office transfers inventory worth P80,000 to the branch. Shipments to the branch are billed
at 120% of cost. Freight paid by the branch is P6,000

HOME OFFICE BRANCH

Investment in Branch 96,000 Shipments from Home Office 96,000
Shipments to Branch 80,000 Freight In 6,000
Allowance for mark up 16,000 Home Office 96,000
Cash 6,000
Accounting for Branch Operations
• Branch purchases inventory worth P40,000 on account, from outside party. Freight paid by the
branch is P2,000

HOME OFFICE BRANCH

Inventory 40,000
Freight In 2,000
Accounts Payable 40,000
Cash 2,000
Accounting for Branch Operations
• Branch makes total sales of P500,000 on account

HOME OFFICE BRANCH

Accounts Receivable 500,000
Sales 500,000
 Accounting for Branch Operations
• Branch incurs total expenses of P100,000. P20,000 of which were allocated by the home office to
the branch

HOME OFFICE BRANCH

Investment in Branch 20,000 Utilities Expense 100,000
Utilities Expense 20,000 Home office 20,000
Cash 80,000
Solution

Individual Profit of the Branch

Sales ₱ 500,000
Cost of Sales
Inventory Beginning -
Shipments From Home Offi ce 456,000
Freight In 18,000
Purchases 40,000
Total Goods Available for Sale 514,000
Inventory, end (250,000) (264,000)
Individual Gross Profit of the Branch 236,000
Operating Expenses (100,000)
Individual Profit of the Branch ₱ 136,000
Solution

True Profit of the Branch

Sales ₱ 500,000
Cost of Sales
Inventory Beginning -
Shipments From Home Offi ce 380,000
Freight In 18,000
Purchases 40,000
Total Goods Available for Sale 438,000
Inventory, end (210,000) (228,000)
True Gross Profit of the Branch 272,000
Operating Expenses (100,000)
True Profit of the Branch ₱ 172,000
Relationships
Realized Mark Up
True Profit of the Branch ₱ 172,000
Individual Profit of the Branch ₱ (136,000)
Realized Mark Up ₱ 36,000

Realized Mark Up
Inventory, Beginning @ Allowance -
Shipments from Home Offi ce @ Allowance 76,000
Total Goods From HO @ Allowance 76,000
Ending Inventory @ Allowance (40,000)
Realized Mark Up 36,000

True Profit of the Branch

Individual Profit of the Branch ₱ 136,000
Realized Mark Up ₱ 36,000
True Profit of the Branch ₱ 172,000
Relationships
MAGIC TABLE
At Billed Price At Cost Mark Up
Beg Inv from HO xx xx xx Allowance for Beg Inv
Shipments xx xx xx Allowance for Shipments
Available for Sale xx xx xx Total Unadjusted Allowance
End Inv from HO (xx) (xx) (xx) Adjusted Allowance / Unrealized Mark-up
Cost of Goods Sold xx xx xx Realized Mark up

MAGIC TABLE A or (B x 120%) B or (A / 120%) A - B = C or (B * 20%)

At Billed Price At Cost Mark Up
Beg Inv from HO - - - Allowance for Beg Inv
Shipments 456,000 380,000 76,000 Allowance for Shipments
Available for Sale 456,000 380,000 76,000 Total Unadjusted Allowance
End Inv from HO (240,000) (200,000) (40,000) Adjusted Allowance / Unrealized Mark-up
Cost of Goods Sold 216,000 180,000 36,000 Realized Mark up
Problem #2 Different Mark Up %
The following information was taken from the records of the home offi ce and branch of ABC. CO

Home Office Branch

Sales ₱ 1,500,000 ₱ 600,000
Purchases ₱ 1,200,000 ₱ 40,000
Shipments to Branch ₱ (300,000)
Shipments from Home Offi ce ₱ 420,000
Operating Expenses ₱ 230,000 ₱ 90,000
Inventory, beg
From outside purchases ₱ 57,000 ₱ 2,000
From home offi ce at 20% above cost ₱ 30,000
Inventory, end
From outside purchases ₱ 460,000 ₱ 10,000
From home offi ce ₱ 280,000

Requirements: Compute
Requirements: Compute forforthe
theFollowing
Following
a. Individual profit of the branch
a. Individual Profit of the Home Offi ce
b. Realize Markup
b. Individual profit of the branch
c. True profit of the branch
c. Realize Markup
d. Individual Profit of the Home Offi ce
d.e.True profit of the branch
Combined profit of the home offi ce and the branch
e. Combined profit of the home offi ce and the branch
Solution

Requirement (a)
Sales ₱ 1,500,000
Cost of Sales
Inventory, beg ₱ 57,000
Purchases ₱ 1,200,000
Shipments to Branch ₱ (300,000)
Total Goods available for sale ₱ 957,000
Inventory, end ₱ (460,000) ₱ (497,000)
Individual Gross profit of the Home Offi ce ₱ 1,003,000
Opearting expenses ₱ 230,000
Individual Profit of the Home Offi ce ₱ 1,233,000
Solution

Requirement (b)
Sales ₱ 600,000
Cost of Sales
Inventory, beg ₱ 32,000
Shipments from Home Offi ce ₱ 420,000
Purchases ₱ 40,000
Total Goods available for sale ₱ 492,000
Inventory, end ₱ (290,000) ₱ (202,000)
Individual Gross profit of the branch ₱ 398,000
Opearting expenses ₱ (90,000)
Individual Profit of the branch ₱ 308,000
Solution
Requirement (c)
Mark Up % for current year (420,000 / 300,000) 140%

Allowance for mark up (30k x 120%/20%) 5,000

Markup on Shipment during the period (300 * 40%) 120,000
Unadjusted Mark up 125,000
Unrealized Mark up (280k * 40%/140%) (80,000)
Realized Mark up 45,000

MAGIC TABLE
At Billed Price At Cost Mark Up
Beg Inv from HO 30,000 25,000 5,000 Allowance for Beg Inv
Shipments 420,000 300,000 120,000 Allowance for Shipments
Available for Sale 450,000 325,000 125,000 Total Unadjusted Allowance
End Inv from HO (280,000) (200,000) (80,000) Adjusted Allowance / Unrealized Mark-up
Cost of Goods Sold 170,000 125,000 45,000 Realized Mark up
Solution
Requirement (d)
Sales ₱ 600,000
Cost of Sales
Inventory, beg ₱ 27,000
Shipments from Home Offi ce ₱ 300,000
Purchases ₱ 40,000
Total Goods available for sale ₱ 367,000
Inventory, end ₱ (210,000) ₱ (157,000)
True Gross profit of the branch ₱ 443,000
Opearting expenses ₱ (90,000)
True Profit of the branch ₱ 353,000

Requirement (d)
Individual Profit of the Branch ₱ 308,000
Realized Mark Up 45,000
True Profit of the Branch ₱ 353,000
Solution
Requirement (e)
Sales ₱ 2,100,000
Cost of Sales
Inventory, beg ₱ 84,000
Purchases ₱ 1,240,000
Total Goods available for sale ₱ 1,324,000
Inventory, end ₱ (670,000) ₱ (654,000)
Individual Gross profit of the branch ₱ 1,446,000
Opearting expenses ₱ (320,000)
Combined Profit ₱ 1,126,000

Requirement (e)
True Profit of the Branch 353,000
Individual Profit of the Home Offi ce 773,000
Combined Profit 1,126,000
5
Inter-branch
Transfers
ADVANCED ACCOUNTING
 Inter-Branch Transfers
• The Home Office instructs Branch #1 to transfer P10,000 cash and inventory worth P20,000 to
Branch #2

HOME OFFICE BRANCH #1 BRANCH #2

Investment in Branch # 2 30,000 Home Office 30,000 Cash 10,000
Investment in Branch #1 30,000 Cash 10,000 Shipments from HO 20,000
Shipments from HO 20,000 Home Office 30,000
 Inter-Branch Transfers – Excessive Freight
• The Home Office Transfers inventory worth P150,000 to Branch #1. Freight paid by the home
office is P10,000
HOME OFFICE BRANCH #1 BRANCH #2
Investment in Branch # 1 160,000 Shipments from HO 150,000
Shipments to Branch #1 150,000 Freight-In 10,000
Cash 10,000 Home Office 160,00

• Later on, the Home Office instructs Branch #1 to transfer to Branch #2 the same merchandise and
Branch #1 pays freight of P3,000. If the merchandise have been shipped directly to Branch #1
from the HO the freight cost would have been P11,000
HOME OFFICE BRANCH #1 BRANCH #2
Shipments to Branch #2 150,000 Home Office 163,000 Shipments from HO 150,000
Shipments to Branch #1 150,000 Shipments from HO 150,000 Freight-In 11,000
Freight-In 10,000 Home Office 161,00
Investment in Branch# 2 161,000 Cash 3,000
Loss on Excessive Freight 2,000
Investment in Branch #1 163,000
 Inter-Branch Transfers – Savings on Freight
• The Home Office Transfers inventory worth P150,000 to Branch #1. Freight paid by the home
office is P10,000
HOME OFFICE BRANCH #1 BRANCH #2
Investment in Branch # 1 160,000 Shipments from HO 150,000
Shipments to Branch #1 150,000 Freight-In 10,000
Cash 10,000 Home Office 160,00

• Later on, the Home Office instructs Branch #1 to transfer to Branch #2 the same merchandise and
Branch #1 pays freight of P3,000. If the merchandise have been shipped directly to Branch #1
from the HO the freight cost would have been P14,000
HOME OFFICE BRANCH #1 BRANCH #2
Shipments to Branch #2 150,000 Home Office 163,000 Shipments from HO 150,000
Shipments to Branch #1 150,000 Shipments from HO 150,000 Freight-In 13,000
Freight-In 10,000 Home Office 163,00
Investment in Branch# 2 163,000 Cash 3,000
Investment in Branch #1 163,000