Advanced Accounting Chapter 4: Accounting for Branches; Combined Financial Statements

Branches & Divisions

Definition: A branch is a business unit located at a distance from the home office.
Functions:
- Carries merchandise from the home office.
- Makes sales and approves customer credit.
- Collects payments from customers.
- Deposits cash receipts into a home office bank account.
Expenses:
- Paid from an imprest cash fund or bank account provided by the home office.
- Branch must submit a list of cash payments with vouchers for replenishment.

Records Maintained:
- Journals
- Ledgers
- Chart of accounts
Reporting:
- Branches may keep all accounting records at the home office.
- Submit daily reports and documents to the home office.
- Transactions recorded in computerized accounting records by the home office.
- Financial statements are prepared by branch accountants and sent to the home office.

Depreciation:
- Often not controlled by the branch manager.
- Ledger accounts for branch plant assets and related depreciation are maintained by the home office.
Home Office Ledger Account:
- Reflects all activity between the branch and the home office.
- Credits:
  - For merchandise, cash or assets provided by the home office.
- Debits:
  - For cash, merchandise, or assets sent by the branch to the home office or other branches.

Nature: Quasi-ownership equity account showing net investment by the home office in the branch.
Closing Process:
- Income Summary account closed to the Home Office account at period end.
- Net income increases the credit balance; net loss decreases it.
Home Office Accounting Records:
- Maintain a reciprocal ledger account titled "Investment in Branch".
- Debits:
  - For cash, merchandise, services provided, and net income reported by the branch.
- Credits:
  - For cash or assets received from the branch and for net losses reported by the branch.