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Practical Accounting 2
Advance Financial Accounting Vol. 2
Advance Accounting Vol. 2
1. Home Office and Branch Accounting –
General Procedures
2. Home Office and Branch Accounting –...
Advance Accounting Vol. 2
6. Intercompany Profit Transactions –
Inventories
7. Intercompany Gain Transactions – Plant
Asse...
Advance Accounting Vol. 2
1. Home Office and Branch Accounting –
General Procedures
Accounting for Sales Agency
1. Determi...
Advance Accounting Vol. 2
1. Sales Agency - Determine NOT Separately
the Net Income
The transactions of the Sales agency a...
Advance Accounting Vol. 2
1. Sales Agency - Determine Separately the
Net Income
Transactions Home Office Books (Entries)
Working Fund Established Working Fund - Sales Agency xx
Cash xx
Shipped Merchandi...
Advance Accounting Vol. 2
Observation
At the end of accounting period, the account Shipments
of Merchandise - Agency is de...
Advance Accounting Vol. 2
Accounting for Branch
Asset/ExpensetoBranch
(Investment)
xx Asset/ExpensefromBranch xx
(Withdraw...
InvestmentinBranch xx Cash xx
Cash xx PPE xx
PPE xx HomeOffice xx
Advance Accounting Vol. 2
TRANSACTIONS
Established of Br...
Purchases xx
NO ENTRY Accounts Payable xx
Advance Accounting Vol. 2
Merchandise Shipments to a Branch:
From Outside Partie...
PPE - Branch xx NO ENTRY
Cash xx
InvestmentinBranch xx PPE xx
Cash xx HomeOffice xx
Advance Accounting Vol. 2
Branch PPE
C...
PPE-Branch xx HomeOffice xx
InvestmentinBranch xx Cash xx
Advance Accounting Vol. 2
Case C: Plant Asset are recorded in th...
Advance Accounting Vol. 2
Observation
1. Freight Costs incurred in shipping merchandise
from the HO to Branch become part ...
Advance Accounting Vol. 2
Observation
4. The HO Shipments to Branch and branch Shipments
from HO account are nominal accou...
Advance Accounting Vol. 2
TRANSACTIONS
Apportionment of Expenses:
Utilities Expenses (Expenses incurred by branch and bill...
Advance Accounting Vol. 2
Observation
Not Only Assets can be transferred BUT ALSO the
allocated expenses.
Elimination Entr...
RECONCILIATION OF RECIPROCAL ACCOUNTS
(Common Errors)
Balances Before Adjustments xx xx
Additions:
(1) Merchandise Shipped...
Advance Accounting Vol. 2
2. SPECIAL PROBLEMS - BRANCH ACCOUNTING
1. Merchandise Shipments to Branch at price in
excess of...
Advance Accounting Vol. 2
2. SPECIAL PROBLEMS - BRANCH ACCOUNTING
1. Merchandise Shipments to Branch at price in
excess of...
Advance Accounting Vol. 2
Investment in Branch xx Shipments from HO xx
Shipments to Branch xx Home Office xx
Allowance for...
Advance Accounting Vol. 2
FORMULA:
ApproachA
REALIZEDPROFIT= CostofGoodsSoldbyBranch BalanceofAllowancefor
GoodAvailablefo...
Advance Accounting Vol. 2
Approach B
Balance of Allowance for Overvaluation
of Branch Inventory Account(Unrealized Profit)...
Advance Accounting Vol. 2
Observation
Home Office records the overvaluation.
Allowance for Overvaluation of Branch Invento...
Advance Accounting Vol. 2
Elimination Entries:
Reciprocal Accounts: Home Office xx
Investment in Branch xx
Transfer of Mer...
Advance Accounting Vol. 2
Observation
On the 1st year, the elimination of the intercompany
shipments requires the complete...
Advance Accounting Vol. 2
TREATMENT OF BEGGINNING BILLED ABOVE COST
Tableinbringingthecost of inventory@COST
BILLEDPRICE C...
Advance Accounting Vol. 2
ApproachA
(GAS@BilledPrice-EndingInvty@BilledPrice)
REALIZEDPROFIT= CostofGoodsSoldbyBranch Bala...
Advance Accounting Vol. 2
Approach B
GAS Overvaluation xx
Less: Overvaluation of Ending Inventory(Branch)
Billed Price of ...
Advance Accounting Vol. 2
Observation
Realized Profit is the amount that Branch Net Income
is Understated
Concern means TR...
Advance Accounting Vol. 2
TRANSACTIONS BETWEEN BRANCHES
Inter-branch Transfers of Cash
Accounting Rule: The Branch will cl...
Advance Accounting Vol. 2
Inter-branch Transfers of Merchandise
Accounting Rule:
Branches SHOULD NOT CARRY an account with...
Advance Accounting Vol. 2
Explanation to the Accounting Rule:
Recording as an expense the excess freight cost on
merchandi...
Transactions:
Home Office Branch X Books Branch Y Books
Shipment of Merchandise
Investment in Shipments from HO xx Shipmen...
Advance Accounting Vol. 2
Branch True Income Statement (T-account)
Branch Beg. Inventory Sales xx
at Billed Price xx
Branc...
Advance Accounting Vol. 2
Sales xx
Beginning Inventory xx Ending Inventory xx
Purchases xx Shipments to Branch xx
Freight-...
Advance Accounting Vol. 2
NOTE:
BILLED PRICE:
Shipments FROM Home Office
Shipments TO Branch
Realization of % mark-up xx B...
End Of Home and Branch Accounting
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Practical accounting 2 vol 2

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Practical accounting 2 vol 2

  1. 1. Practical Accounting 2 Advance Financial Accounting Vol. 2
  2. 2. Advance Accounting Vol. 2 1. Home Office and Branch Accounting – General Procedures 2. Home Office and Branch Accounting – Special Problems 3. Business Combinations 4. Consolidated Balance Sheet – Date of Acquisition 5. Consolidated Financial Statements
  3. 3. Advance Accounting Vol. 2 6. Intercompany Profit Transactions – Inventories 7. Intercompany Gain Transactions – Plant Assets 8. Accounting For Foreign Currency Transactions 9. Translation of Foreign Entity Statements
  4. 4. Advance Accounting Vol. 2 1. Home Office and Branch Accounting – General Procedures Accounting for Sales Agency 1. Determine NOT Separately the Net Income 2. Determine Separately the Net Income
  5. 5. Advance Accounting Vol. 2 1. Sales Agency - Determine NOT Separately the Net Income The transactions of the Sales agency are recorded in the Home Office's own revenue and expense accounts. When the Home Office transfers fixed assets to Sales Agency.
  6. 6. Advance Accounting Vol. 2 1. Sales Agency - Determine Separately the Net Income
  7. 7. Transactions Home Office Books (Entries) Working Fund Established Working Fund - Sales Agency xx Cash xx Shipped Merchandise to Agency as Samples Inventory - Agency xx samples Shipments TO Agency xx Filled Sales orders from Agency Accounts Receivable xx Sales - Agency xx Cost of Inventory Identified COGS - Agency xx Shipments TO Agency xx [ if Periodic] COGS - Agency xx Merchandise Inventory xx [ if Perpetual] Replenishment of Working Fund Various Expense Accounts xx Cash xx To Close Revenue and Expense Sales - Agency xx COGS - Agency xx Various Expense Accounts xx Income - Agency xx To close Income Summary Account Agency Income xx Income Summary xx
  8. 8. Advance Accounting Vol. 2 Observation At the end of accounting period, the account Shipments of Merchandise - Agency is deducted from the total of Beginning Inventory and Purchases to determine the GAS by the home office for its operations. Sales Agency neither keeps a complete set of books nor uses a double entry systems accounts. An Imprest System is usually adopted by the Home Office for the working fund of the sales agency. THEY MAINTAIN SAMPLES INVENTORY
  9. 9. Advance Accounting Vol. 2 Accounting for Branch Asset/ExpensetoBranch (Investment) xx Asset/ExpensefromBranch xx (Withdrawal) BranchProfit xx BranchLoss xx HomeOfficeBooks InvestmentinBranch HomeOffice BranchBooks xx xx xx xx
  10. 10. InvestmentinBranch xx Cash xx Cash xx PPE xx PPE xx HomeOffice xx Advance Accounting Vol. 2 TRANSACTIONS Established of Branch Recognition of Branch Income or Loss InvestmentinBranch xx IncomeSummary xx Branchincome xx HomeOffice xx
  11. 11. Purchases xx NO ENTRY Accounts Payable xx Advance Accounting Vol. 2 Merchandise Shipments to a Branch: From Outside Parties: From Home Office Billed at Cost with Freight Charges: InvestmentinBranch xx ShipmentsfromHO xx ShipmentstoBranch xx Freight-In xx Cash xx HomeOffice xx
  12. 12. PPE - Branch xx NO ENTRY Cash xx InvestmentinBranch xx PPE xx Cash xx HomeOffice xx Advance Accounting Vol. 2 Branch PPE Case A: Plant Assets are recorded in the books of the Branch but purchased by the Home Office for the Branch Case B: Plant Assets are recorded in the books of the Home Office but purchased by the Home Office for the Branch
  13. 13. PPE-Branch xx HomeOffice xx InvestmentinBranch xx Cash xx Advance Accounting Vol. 2 Case C: Plant Asset are recorded in the books of the Home Office but purchased by the Branch for the Branch
  14. 14. Advance Accounting Vol. 2 Observation 1. Freight Costs incurred in shipping merchandise from the HO to Branch become part of the cost of the branch inventory. 2. Shipments to Branch is subtracted from the total of beginning inventory and purchases in the computation of home office's COGS for the period. 3. Shipments from Home Office account on the branch books is included in the computation of the branch's COGS as an addition to purchases.
  15. 15. Advance Accounting Vol. 2 Observation 4. The HO Shipments to Branch and branch Shipments from HO account are nominal accounts and therefore closed at the end of the period to Income Summary account together with the revenue and expense accounts.
  16. 16. Advance Accounting Vol. 2 TRANSACTIONS Apportionment of Expenses: Utilities Expenses (Expenses incurred by branch and billed to HO account) Depreciation Expenses (Branch Plant Assets carried on HO books) Advertising Expenses (Allocated to Branch) InvestmentinBranch xx UtilitiesExpenses xx UtilitiesExpenses xx DepreciationExpenses xx DepreciationExpenses xx AdvertisingExpenses xx AdvertisingExpenses xx HomeOffice xx
  17. 17. Advance Accounting Vol. 2 Observation Not Only Assets can be transferred BUT ALSO the allocated expenses. Elimination Entries: Reciprocal Accounts: Home Office xx Investment in Branch xx Shipments of Merchandise Shipments TO Branch xx Shipments FROM ho xx
  18. 18. RECONCILIATION OF RECIPROCAL ACCOUNTS (Common Errors) Balances Before Adjustments xx xx Additions: (1) Merchandise Shipped to Branch STILL IN TRANSIT xx (4) Receivable of HO collected by Branch xx Total xx xx Deductions: (2) Receivable of Branch collected by Home Office (xx) (3) Office Equipment purchased by the branch (xx) (5) Errormade by branch in recording expenses. xx Adjusted Balances xx xxMUST BE EQUAL Investment in Branch Home Office
  19. 19. Advance Accounting Vol. 2 2. SPECIAL PROBLEMS - BRANCH ACCOUNTING 1. Merchandise Shipments to Branch at price in excess of cost, @ billed price 2. Inter-branch Transfers of Cash 3. Inter-branch transfer of Merchandise.
  20. 20. Advance Accounting Vol. 2 2. SPECIAL PROBLEMS - BRANCH ACCOUNTING 1. Merchandise Shipments to Branch at price in excess of cost, @ billed price When billings to the branch exceed cost, the profits determined by the branch will be less than actual profits. Inventories reported by the branch are overstated in as much as they were valued based on the billed price, NOT THEIR COST.
  21. 21. Advance Accounting Vol. 2 Investment in Branch xx Shipments from HO xx Shipments to Branch xx Home Office xx Allowance for Overvaluation xx of Branch Inventory To Close: Allowance for Overvaluation of Branch Inventory xx NO ENTRY Branch Income xx Home Office Books Branch Books Investment in Branch Home Office
  22. 22. Advance Accounting Vol. 2 FORMULA: ApproachA REALIZEDPROFIT= CostofGoodsSoldbyBranch BalanceofAllowancefor GoodAvailableforSale OvervaluationofBranchInventory (acquiredfromHO) (UnrealizedProfit) X
  23. 23. Advance Accounting Vol. 2 Approach B Balance of Allowance for Overvaluation of Branch Inventory Account(Unrealized Profit) xx Less: Overvaluation of Ending Inventory(Branch) Billed Price xx Cost [Billed Price / (1+ Mark Up %)] (xx) (xx) Realized Profit xx
  24. 24. Advance Accounting Vol. 2 Observation Home Office records the overvaluation. Allowance for Overvaluation of Branch Inventory is also called Unrealized Profit in Branch Inventory. Branch Income is NOT CLOSE to Investment in Branch; might result to unbalanced amount. Only the reported income or loss of branch is closed to Investment in Branch. Allowance for Overvaluation will remain until the shipment is shifted is reshipped or sold by the branch to outsiders. (Unrealized → Realized Profit)
  25. 25. Advance Accounting Vol. 2 Elimination Entries: Reciprocal Accounts: Home Office xx Investment in Branch xx Transfer of Merchandise between Home Office & Branch Shipments TO Branch xx Allowance for Overvaluation of Branch Inventory xx Shipments FROM ho xx To carry the Inventory (Branch) @ Cost Inventory End (Income Statement) xx Inventory End (Balance Sheet) xx
  26. 26. Advance Accounting Vol. 2 Observation On the 1st year, the elimination of the intercompany shipments requires the complete elimination of Unrealized Profit account, because there's NO Beginning Inventory.
  27. 27. Advance Accounting Vol. 2 TREATMENT OF BEGGINNING BILLED ABOVE COST Tableinbringingthecost of inventory@COST BILLEDPRICE COST OVERVALUATION Beg.Inventory xx xx xx Add:ShipmentsfromHomeOffice xx xx xx AvailableForSale xx xx xx Unrealized Profit Less:EndingInventory (xx) (xx) (xx) Cost of GoodsSold xx xx xx Realized Profit
  28. 28. Advance Accounting Vol. 2 ApproachA (GAS@BilledPrice-EndingInvty@BilledPrice) REALIZEDPROFIT= CostofGoodsSoldbyBranch BalanceofAllowancefor GoodAvailableforSale OvervaluationofBranchInventory (acquiredfromHO) (UnrealizedProfit) (Beg.Inventory@BilledPrice+ ShipmentsfromHO@BilledPrice) X
  29. 29. Advance Accounting Vol. 2 Approach B GAS Overvaluation xx Less: Overvaluation of Ending Inventory(Branch) Billed Price of Ending Inventory xx Cost of Ending Inventory (xx) (xx) Realized Profit xx
  30. 30. Advance Accounting Vol. 2 Observation Realized Profit is the amount that Branch Net Income is Understated Concern means TRUE
  31. 31. Advance Accounting Vol. 2 TRANSACTIONS BETWEEN BRANCHES Inter-branch Transfers of Cash Accounting Rule: The Branch will clear such transfer through its Home Office Account Transactions: HomeOffice BranchABooks BranchBBooks Investmentin BranchB xx HomeOffice xx Cash xx Investmentin Cash xx HomeOffice xx BranchA xx
  32. 32. Advance Accounting Vol. 2 Inter-branch Transfers of Merchandise Accounting Rule: Branches SHOULD NOT CARRY an account with another branch but should be clear the transfer through its Home Office account. Freight on Goods received by the branch directly from HO are properly included in the cost of branch inventory, but the transfer of merchandise from one branch to another does not justify increasing the inventory value by the additional freight costs incurred because of the indirect routing Excess freight costs should be absorbed by the Home Office and treated as Expense.
  33. 33. Advance Accounting Vol. 2 Explanation to the Accounting Rule: Recording as an expense the excess freight cost on merchandise transferred from one branch to another is a manifestation of the accounting principle that losses should be given prompt recognition. The excess freight cost arising from such shipments generally is a result of inefficient planning of original shipments and therefore should not be included in inventories.
  34. 34. Transactions: Home Office Branch X Books Branch Y Books Shipment of Merchandise Investment in Shipments from HO xx Shipments from HO xx Branch X xx Freight-In xx Freight-In xx Shipment to Home Office xx Home Office xx Branch X xx Cash (freight) xx Order to Transfer Shipment to xx Home Office xx Branch X Shipments from HO xx Shipment to xx Freight-In xx Branch Y Cash xx Investment in Brach Y xx Interbranch Freight Expense xx Investment in Brach Y xx
  35. 35. Advance Accounting Vol. 2 Branch True Income Statement (T-account) Branch Beg. Inventory Sales xx at Billed Price xx Branch Ending Inventory Purchases from Outsiders xx at Billed Price xx Shipments from HO Branch Beg. Inventory at Billed Price xx [Unrealized Profit] xx Operating Expenses xx Shipments from HO Freight-In xx [Unrealized profit] xx Branch End Inventory xx [Unrealized Profit] TRUE LOSS TRUE PROFIT Investment in Branch
  36. 36. Advance Accounting Vol. 2 Sales xx Beginning Inventory xx Ending Inventory xx Purchases xx Shipments to Branch xx Freight-In xx Branch Income xx Operating Expenses xx Branch Loss xx COMBINED LOSS COMBINED INCOME HOME OFFICE
  37. 37. Advance Accounting Vol. 2 NOTE: BILLED PRICE: Shipments FROM Home Office Shipments TO Branch Realization of % mark-up xx Beginning Balance xx on merchandise sold by branch (Mark-up on Beg. Inventory) (mark up beg. & shipment from HO inventories) Mark-up on merchandise xx shipped to branch during current year. Ending Balance xx (mark-up on ending inventory) Allowance for Overvaluation of Branch Inventory
  38. 38. End Of Home and Branch Accounting

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