‫‪Advanced‬‬
‫‪Accounting‬‬
‫)‪Session (1‬‬
‫‪Home office and Branch‬‬
‫َ‬
‫ن‬
‫أنت خارج من المجمع‪ ،‬شارع ال ـ ‪( KM‬إسالم‪)01095350069 -‬‬
‫مكتبة التفوق‪ ،‬أول شارع‬
‫يمي وأنت‪ِ /‬‬
‫ واذكر الل‬،‫صلي علي النيب من قلبك‬
Mahmoud Mohamed Badwi
Chapter (1): Home Office and Branch
✓ A Branch is a business unit located at some distance from Home Office.
✓ In a decentralized system, transactions between the home office and the branch are
recorded on both the home office and the branch books. On the home office books, a
reciprocal account, investment in branch, is opened for each branch established. In the
branch ledger, a reciprocal home office account is created to record transactions between
the home office and the branch.
✓ The unit carries merchandise obtained from the home office, makes sales, approves
customers' credit, and makes collections from its customers.
✓ A branch may obtain merchandise solely from the home office.
✓ The cash receipts of the branch may be deposited in a bank account belonging to the home
office.
✓ The branch expenses are paid from an imprest cash fund or bank account provided by home
office.
✓ The branch must submit a list of cash payments supported with vouchers in order to get
replenishment from home office.
✓ The use of imprest cash fund gives the home office considerable control over the cash
transactions of the branch.
✓ The accounting records for branches may be centralized in the home office or may be
decentralized so that each branch maintains a complete set of accounting records.
✓ The establishment of a branch often requires the incurring of considerable costs before
significant revenue may be generated.
✓ A business enterprise with branches may provide for a complete set of accounting records
at each branch.
✓ A branch may maintain a complete set of accounting records consisting of journals, and
ledgers similar to those of an independent business enterprise.
✓ Financial statements are prepared by branch accountant and forwarded to home office.
✓ The accounting records of a branch include a home office ledger account that is credited
for assets and services provided by the home office
✓ The Home Office account is an ownership equity-type account representing the net
investment of the home office in the branch.
Home office
•
•
Assets transferred to home office
Branch net loss
Assets received from home office
Branch net income
•
•
Investment in Branch
•
•
Assets transferred to branch
Branch net income
•
•
2
Assets received from branch
Branch net loss
‫ واذكر الل‬،‫صلي علي النيب من قلبك‬
Mahmoud Mohamed Badwi
Question (1):
Assume that Smaldino Company bills merchandise to Mason Branch at cost and that Mason
Branch maintains an accounting records and prepares financial statements. Transactions and
events during the first year (Year 1) of operations of Mason Branch are summarized below:
1. Cash of $1,000 was forwarded by the home office to Mason Branch
2. Merchandise with a cost of $60,000 was shipped by the home office to Mason Branch
3. Equipment was acquired by Mason Branch for $500, to be carried in the home office
accounting records.
(Other plant assets for Mason Branch generally are acquired by the home Office.)
4. Credit sales by Mason Branch amounted to $80,000; the cost of the merchandise sold
was $45,000.
5. Collections of trade accounts receivable by Mason Branch amounted to $62,000.
6. Payments for operating expenses by Mason Branch totaled $20,000.
7. Cash of $37,500 was remitted by Mason Branch to the home office.
8. Operating expenses incurred by the home office and charged to Mason Branch
totaled $3,000.
Required
A. Prepare journal entries in accounting records of the home and the branch.
B. Prepare investment in branch account and home office account.
C. Prepare closing entries for both the home office and the branch.
Home Office Journal Entries
1
2
3
Investment in Mason Branch
Cash
1,000
Investment in Mason Branch
Inventories
60,000
Equipment - Mason Branch
Investment in Mason Branch
Mason Branch Journal Entries
Cash
1,000
60,000
500
500
4
6
7
8
Investment in Mason Branch
Operating Expenses
3,000
Home Office
Cash
60,000
60,000
500
500
Cash
Account Receivable
62,000
Operating Expenses
Cash
20,000
37,500
37,500
Home Office
Cash
3,000
3,000
Operating Expenses
Home Office
None
37,500
Inventories
Home Office
1,000
80,000
45,000
None
Cash
Investment in Mason Branch
Home Office
Accounts Receivable
Cost of Goods Sold
Sales
Inventories
None
5
1,000
3
80,000
45,000
62,000
20,000
37,500
3,000
‫ واذكر الل‬،‫صلي علي النيب من قلبك‬
Mahmoud Mohamed Badwi
Investment in Mason Branch
Cash sent to branch
1,000
Merchandise billed to branch
60,000
Operating expense billed to branch
3,000
Balance
26,000
Equipment acquired by branch
Cash received from branch
500
37,500
Home office
Equipment acquired
Cash sent to home office
500
37,500
Cash received from home office
1,000
Merchandise received from home office
60,000
Operating expense billed by home office
3,000
Balance
26,000
!‫؟‬Closing ‫ األول فاكر خطوات عمل ال ـ‬Closing entries ‫قبل ما تعمل ال ـ‬
Dr ‫ لـ ـ‬Cr ‫) من‬Revenues( ‫ قفل اإليرادات‬.1
Cr ‫ لـ ـ‬Dr ‫) من‬Expenses( ‫ قفل المرصوفات‬.2
‫ن‬
،‫يبق زيادة‬
‫ لو كسب ي‬،‫) بالفرق بي اإليرادات والمرصوفات‬Capital( ‫ زيادة أو نقصان رأس المال‬.3
.‫يبق تقليل‬
‫لو خسارة ي‬
Home Office
Branch
None
Investment in branch
Branch net income
12,000
Branch net income
Income summary
12,000
Sales revenue
Income summary
80,000
Income summary
Cost of Goods Sold
Operating Expense
(20,000 + 3,000)
68,000
Income summary
12,000
Home Office
12,000
4
80,000
45,000
23,000
12,000
12,000
‫ واذكر الل‬،‫صلي علي النيب من قلبك‬
Mahmoud Mohamed Badwi
Question (2):
The following are transactions between Makka Company and Sheikh Branch during year 2015:
1. Cash of $20,000 was forwarded by the home office to Sheikh Branch
2. Merchandise with a home office cost of $32,000 was shipped by the home office to
Sheikh Branch
3. Car was acquired by Sheikh Branch for $30000, to be carried in the home office
accounting records.
4. Credit sales by Sheikh Branch amounted to $40,000; cash sales were $20,000
5. Collections of trade accounts receivable by Sheikh branch amounted to $8,000
6. Payments for operating expenses by Sheikh Branch totaled $20,000
7. Cash of $10,500 was remitted by Sheikh Branch to the home office
8. Operating expenses incurred by the home office and charged to Sheikh Branch totaled
$10,000
A. Prepare journal entries in accounting records of the home and the branch.
Required
B. Prepare investment in branch account and home office account.
C. Prepare closing entries for both the home office and the branch.
Home Office Journal Entries
1
2
3
Investment in Mason Branch
Cash
20,000
Investment in Mason Branch
Inventories
32,000
Car - Sheikh Branch
Investment in Branch
30,000
Mason Branch Journal Entries
Cash
20,000
Home Office
32,000
32,000
Inventories
Home Office
30,000
30,000
Home Office
Cash
Accounts Receivable
Cash
Sales
40,000
20,000
Cash
Account Receivable
8,000
Operating Expenses
Cash
20,000
10,500
10,500
Home Office
Cash
10,000
10,000
Operating Expenses
Home Office
4
None
5
6
7
8
None
None
Cash
Investment in Mason Branch
10,500
Investment in Mason Branch
Operating Expenses
10,000
20,000
5
20,000
32,000
30,000
60,000
8,000
20,000
10,500
10,000
‫ واذكر الل‬،‫صلي علي النيب من قلبك‬
Mahmoud Mohamed Badwi
Investment in Sheikh Branch
20,000
30,000
32,000
10,500
10,000
Balance
21,500
Home office
30,000
20,000
10,500
32,000
10,000
Balance
21,500
Closing entries:
Home Office
Branch
Sales revenue
Income summary
Operating Expense
None
Investment in Sheikh branch
Sheikh Branch net income
30,000
Sheikh Branch net income
Income summary
30,000
Income summary
30,000
Home Office
30,000
6
60,000
30,000
30,000
30,000
30,000