Pagadian Capitol College, Inc
Pagadian City
Accounting for Special Transactions
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Handout 10- Home Office and Branch Accounting
Special Procedures
Transactions between branches
Efficient operations may occasionally require that merchandise or other assets be transferred
from one branch to another. Generally, a branch does not carry a reciprocal ledger account with
another branch but records the transfer in the Home Office ledger account.
Inter-branch transfers of Cash
Assume that upon authorization by the home office, Branch 1 sends cash of P20,000 to Branch
2. The entries to record this transfer on the home office and branch books are:
Home Office Books
Branch 2
P20,000
Branch 1
P20,000
Branch 1 Books
Home Office
P20,000
Cash
P20,000
Cash
Branch 2 Books
P20,000
Home Office
P20,000
When this process is followed, settlement between individual branches is not required. The net
extent of branch accountability in so far as affiliated entities are concerned is summarized in one
account, the Home Office account.
Inter-branch transfers of Merchandise
Assume the following information:
1. Home office ships goods to Branch 3, billing the branch for the goods at P15,000 plus
freight charges incurred for P2000.
2. At a subsequent date, the home office authorizes transfer of these goods to Branch 4.
Branch 3 pays the freight charge on the transfer for P1,500. If the shipment had been
made by the home office directly to Branch 4, the freight charge would have been P2,200.
Entries to record this inter-branch transfer:
Home Office Books
Branch 3 Books
Branch 4 Books
Branch 3
P17,000
Shipments from Home
Shipments to
Office
P15,000
Branch 3
P15,000 Freight –in
2,000
Cash
2,000
Home Office
Current
P17,000
Branch 4
P17,200
Home Office Current P18,500 Shipments from Home
Excess Freight 1,300
Shipments from Home Office P15,000
Branch 3
P18,500 Office
P15,000 Freight-in 2,200
Freight-in
2,000
Home
Office
Current
Cash
1,500 P17,200
Shipments to
Branch 3 P15,000
Shipments to Branch 4
P15,000
Freight- HO to Branch 3
Branch 3 to Branch 4
Total freight due to indirect routing
P2,000
1,500
P3,500
PC Advac31- Home Office and Branch Accounting
Less: Freight- HO to B4
Excess freight of
P2,200
1,300
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Reconciliation of reciprocal accounts
As of any given point of time, the “Investment in Branch” and the “Home Office Current” accounts
must have equal balances. If these accounts do no balance, reconciliation procedures must be
performed.
Reconciling the reciprocal accounts is similar to bank reconciliation procedures. Reconciliation
items can be broadly classified into the following:
a. Transfers in-transit- at the time financial statements are prepared, there may be asset
transfers between the home office and the branch which were not yet recorded by the
supposedly recipient. For instance, there may be shipments of inventory made by the
home office which were not yet received and recorded by the branch by the end of
reporting period. The adjusting entry would be simply a debit to “shipments from home
office” and probably to “Freight-in” also, and a corresponding credit to “Home Office”
account.
b. Unrecorded Debit and Credit memos- a debit memo sent by home office to the branch
means that the home office has debited (increased) the “Investment in Branch” account.
Therefore, the corresponding entry to be made in the branch books is a credit (increase)
to the “Home Office” account. The opposite applies to a credit memo. For example, when
the home office collects accounts receivable on behalf of the branch, the home office
would record the transaction as a debit to cash and a credit to the “Investment in Branch”
account. Therefore, to notify the branch of the transaction, the home office will send a
credit memo to the branch. The branch will in turn record the credit memo as a debit to
the “Home Office” account and a credit to accounts receivable.
A debit memo sent by the branch to the home office means that the branch has debited
(decreased) the “Home Office” account. Therefore, the corresponding entry to be made in
the home office is a credit (decrease) to the “Investment in Branch” account. The opposite
applies to a credit memo. For example, when the branch returns damaged merchandise
received from the home office, the branch would record the transaction as a debit to
“Home Office” account and a credit to “Shipments from Home Office” account. Therefore,
to notify the home office of the transaction, the branch will send a debit memo to the
home office. The home office will in turn record the debit memo as a debit to “Shipments
to branch” account and a credit to the “Investment in branch” account.
A lag in the recording of debit and credit memos can result to imbalance in the reciprocal
accounts on cut-off date.
c. Errors- errors such as omissions in recording, double recording, mathematical mistakes,
and the like can result to imbalance in the reciprocal accounts.
Problem 1. Reconciliation- Adjusted Balance
ABC Co. is currently preparing its combined financial statements. At December 31,2022, the
home office shows a P156,000 balance in its “Investment in Branch” account while the branch
shows a P70,200 balance in its “Home Office Current” account. The following information has
been gathered:
a. The home office shipped merchandise worth P20,000 to the branch during December
2022 which the latter received and recorded only in January 2023. Transfer in transit
PC Advac31- Home Office and Branch Accounting
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b. The home office collected P10,000 accounts receivable on behalf of the branch. The
branch did not yet receive the credit memo sent by the home office. Unrecorded credit
memo
c. The branch returned damaged merchandise worth P30,000 to the home office. The home
office did not yet receive the debit memo sent by the branch. Unrecorded dedit memo
d. A remittance of cash collections amounting to P40,000 was not yet recorded by the home
office. Transfer in transit
e. The home office allocated overhead cost of P5,000 to the branch which the latter has
recorded twice. Double recording
f. Freight charge of P12,000 paid by the home office for shipments of merchandise to the
branch was recorded by the latter as P1,200. mathematical mistakes/omissions
Requirement: compute for the adjusted balances of the reciprocal accounts.
Problem 2. Reconciliation- Unadjusted Balance
ABC Co. is currently preparing its combined financial statements. At December 31, 2022, the
home office shows a P182,000 balance in its “Investment in branch” account. The following
information has been gathered during the reconciliation process:
a. A credit memo sent by the home office to the branch amounting to P12,000 was not
recorded by the branch.
b. A debit memo sent by the home office to the branch amounting to P9,000 was not
recorded by the branch.
c. A credit memo sent by the branch to the home office amounting to P20,000 was recorded
by the home office twice.
d. A debit memo sent by the branch to the home office amounting to P30,000 was recorded
by the home office as P3,000.
e. The branch sent by mistake a credit memo amounting to P7,000 to the home office. The
home office did not record it.
Requirement: compute for the unadjusted balance of the “Home Office” account.
PC Advac31- Home Office and Branch Accounting
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