ADMAS UNIVERSITY

CHAPTER FOUR
ACCOUNTING FOR HOME OFFICE AND BRANCH
Defn.
The term branchis used to describe a business unit located at some distance from the home
office. This unit carries merchandise obtained from the home office, makes sales, approves
customers' credit, and makes collections from its customers.
 The cash receipts of the branch often are deposited in a bank account belonging to the home
office; the branch expenses then are paid from the cash fund or a bank account provided by
the home office.
 As the imprest cash fund is used up, the branch submits a list of cash payments supported by
vouchers and receives a check or a transfer from the home office to replenish the fund.
OBJECTIVE OF BRANCH ACCOUNTS
A business firm establishes branches for marketing the products or services. The parent firm
(head office) is always interested to know the trading results of its branches. For this purpose,
branch accounts are kept. The main purposes of branch accounts are as follows:
i. Branch accounts helps to know the profit or loss of each branch.
ii. It enables the head office to know the financial position of each branch.
iii. It shows the requirements of goods or cash for each branch.
iv. Branch account is the basis and helps the head office to control the activities of branch.
v. Suggestions and improvements are based on the branch accounts.
4.1 The difference between Sales Agency and Branch
Sales Agency Branch
Degree of Subject to the control of the home office
autonomy and is governed by general corporate
policies.
Neither sales agencies nor branches are has more autonomy and provides
separate legal or accounting entities; a greater range of services
they do not prepare separate external
accounting reports.
Not an autonomous operation but acts
on behalf of the home office.
Decision little management decision making; Greater degree of management
making decisions are made at the home office decision making
Reporting Does not keep a financial accounting Maintains separate financial
system; operations are recorded on the accounting records.
books of the home office.

4.1.1 Accounting for Sales Agencies

Because a sales agency normally does not have an accounting system, the home office records all
transactions involving the agency.

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The home office normally accounts for the assets, revenues, and expenses of each agency
separately. This allows the home office to maintain control over the assets and provides
information for assessing the performance of each agency.

Note that the entries are recorded in the same way as if the home office had engaged in the
transactions except that the assets, revenues, and expenses are specifically designated as relating
to the Sales agency.

Example:
Assume that Arada Electronics establishes a sales agency in Awassa.
The journal entries to record typical sales agency transactionson the home office books are given
below.

Journal Entries on Home Office Books:

 The company paid Birr 60,000 for rent of land for sales facility to be used by the sales
agency:
Prepaid Rent—Awassa Agency……………………….…60,000
Cash …………………………………….................................... 60,000
 The company incurred the following costs to construct and furnish building for sales facility
used by the sales agency:
Land— Awassa Agency……………. 60,000
Furniture and Fixtures— Awassa Agency ………….…15,000
Equipment— Awassa Agency……………………… 20,000
Cash………………………………………………… 95,000
 Transfer cash of Birr 5,000 to Awassa agency for petty cash fund:
Petty Cash— Awassa Agency ……………………………..5,000
Cash ………………………………………………… 5,000
 Transfer inventory to be used for display at sales agency having a cost Birr 150,000:
Demonstration Inventory— Awassa Agency………………..150,000
Inventory …………………………………………………………..150,000
 Bills received and paid by home office for various expenses incurred by sales agency:
Utilities Expense— Awassa Agency……………………..2,000
Office Expense— Awassa Agency………………………1,200
Insurance Expense— Awassa Agency…………………… 2,400
Travel Expense— Awassa Agency……………….……….3,000
Advertising Expense— Awassa Agency………………… 1,600
Cash ………………………………………………………. 10,200
 Disburse a total payroll of Birr 45,000 for Awassa sales agency employees:
Salaries Expense— Awassa Agency………………….….45,000
Cash ………………………………………………………………. 45,000
 Fill sales orders from Awassa sales agency.
Accounts Receivable………………………………………72,000
Sales— Awassa Agency………………………………………….72,000
Accounting System for a Branch

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There are various systems of accounting for branch operations. The system may be highly
centralized or completely decentralized or between these two extremes.
Centralized Accounting System
Under a centralized accounting system, a branch does not maintain a separate general ledger in
which to record the transaction. Instead, it sends source documents on sales, purchases, and
payroll to the home office.
Under this system, branch may prepare only the basic records of its transactions, such as sales
invoices, time tickets for employees, and vouchers for liabilities incurred. Copies of all such
documents are forwarded to the home office, where, they are recorded in proper journals in the
usual manner. When this system is used, the branch has no journals or ledgers. If the operating
results of the branch are to be determined separately, which is normally the case, separate branch
accounts for sales, cost of merchandise sold, and expenses must be maintained in the home office
ledger. The principles of departmental accounting will apply in such cases, with the branch
being treated as a department.
Decentralized Accounting Systems
A system of accounting whereby the branch is responsible for the detailed accounting and only
summary accounts carried for the branch by the home office. When the accounting for branches
is decentralized, each branch maintains its own accounting system with journals and ledgers.
The account classification for assets, liabilities, revenues and expenses in the branch ledger
conforms to the classification used by the home office. The accounting processes are like those
of an independent business, except that the branch does not have capital accounts. A special
account entitled Home Office takes the place of the capital accounts. The process of preparing
financial statements and adjusting and closing the accounts is substantially the same as for an
independent business. In the remainder of this unit, we will discuss this system of branch
accounting.
Generally, under decentralized branch
 A branch may maintain a complete set of accounting records consisting of journals, ledgers,
and a chart of accounts similar to those of an independent business enterprise.
 Expenses such as depreciation often are not subject to control by a branch manager;
therefore, both the branch plant assets and the related depreciation ledger accounts generally
are maintained by the home office.
 Each records its transactions with external parties in its own accounting system.
 Financial statements are prepared by the branch accountant and forwarded to the home
office.

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 Even though the home office and each branch maintain separate books, all accounts are
combined for external reporting in such a way that the external financial statements represent
the company as a single economic enterprise.
Accounting for Establishing a Branch
 When a company establishes a branch, the Investment in Branch account in the home office
records the transfer of assets to the branch.
 Similarly, the branch records the transfer with an entry to the Home Office account.

“Investment in Branch is debited when assets are transferred to the branch or if the branch
reports a net income. The account is credited when the branch transfers assets to the home
office or reports a net loss.”
 The account serves as a record of investment in the branch and also as a controlling account
over the branch ledger; that is, the amount of net assets reported on the branch books should
equal the balance in the Investment in Branch account.

“Home Office is credited to offset the equal amount of debits made to the asset accounts.
Conversely, the account is debited when assets are returned to the home office. The account
is also credited (debited) for the amount of reported profit (loss) of the branch.”
A branch is established when a home office transfers cash, inventory, or other assets to an
outlying location. Because the home office views the assets transferred to the branch as an
investment, it makes the following entry:
Investment in branch - - - - - - - - - - - - - - - xx
Asset (s) - - - - - - - - - - - - - - - - - - - - xx
On receipt of the assets from the home office, the branch makes the following entry:
Asset(s) - - - - - - - - - - - - - - - - - - - - - - xx
Home office equity - - - - - - - - - - - - - - xx
The balance in the Investment in Branch account on the books of the home office always equals
the balance in the Home Office Equity account on the books of the branch. In practice, these
accounts are referred to as the Intra Company or reciprocal accounts. At the end of each
accounting period, the branch closes its income or loss to its home office equity account. Upon
the receipt of the branch’s financial statements, the home office adjusts its Investment in Branch
account to reflect the branch’s income or loss and makes the offsetting credit or debit to an
income statement account called branch income or branch loss. As a result of this entry and
upon closing the branch income or branch loss account to retained earnings, the branch’s income
or loss is included in the home office’s retained earnings account.
Reciprocal Accounts:
 Transactions with external parties are recorded in the normal manner.

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 Transactions between the home office and a branch also are treated in the normal manner
except that they are recorded in intra-company/reciprocal accounts.
 The reciprocal account on the books of the home office is called Investment in Branch.
 The reciprocal account on the branch books is called Home Office.
 When a company has more than one branch, a separate investment account for each branch is
maintained on the home office books.
 The balance of the Investment in Branch account indicates the extent of the home office’s
investment in a particular branch through contributions of cash and the transfer of assets and
it is reported under the non-current asset section of the balance sheet of the branch.
 The reciprocal Home Office account on the books of the branch represents the home office’s
equity in the branch, and the balance is shown in place of owners’ equity in the separate
financial statements of the branch prepared for internal reporting purposes.
The balances of the two reciprocal accounts are adjusted for the same transactions.
 The account balances are increased for asset transfers from the home office to the branch
and reduced for asset transfers from the branch to the home office.
Transactions that are usually made between the Home Office and the Branch are:
1. Transfer of assets from head office to branch. The assets may be cash, equipment etc.
2. Transfer of assets from branch to head office.
3. Reporting of operation income or loss by branch.
 Adjustments to the accounts also are made for profits and losses of the branch, with
branch profits leading to an increase in the account balances and branch losses
leading to a decrease.
Note that increases in the home office’s Investment in Branch account are accomplished with
debit entries and decreases with credit entries. Home Office account increases are credited and
decreases are debited.
To illustrate, assume that Nile Corporation establishes a branch in Jimma. The home office
transfers to the branch Birr 20,000 in cash, new office equipment that costs Birr 5,000, and new
store equipment with a cost of Birr 30,000.

Solution:
 The home office records the transfer with the following entry:
Investment in JimmaBranch 55,000
Cash 20,000
Office Equipment 5,000
Store Equipment 30,000
(To record the transfer of assets to Jimma Branch)
 Jimma Branch records the transfer of assets from the home office with the following entry:
Cash 20,000
Office Equipment 5,000

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Store Equipment 30,000
Home Office 55,000
(To record the transfer of assets from home office)

Expenses Incurred by the Home Office and Allocated to Branches

Some business enterprises follow a policy of notifying each branch of expenses incurred by the
home office on the branch's behalf.
 If a plant asset is acquired by the home office for the branch and if it is to be carried on
the books of home office, the journal entry for the acquisition is a debit to an appropriate
asset account such as equipment: Branch and a credit to cash or an appropriate liability
account.
Equipment……………………………………………..xxxx
Cash or an appropriate liability account………………….xxxx
 If the branch acquires a plant asset, it debits the Home Office ledger account and credit
Cash or an appropriate liability account. The home office debits an asset account such as
Equipment: Branch and credits Investment in Branch.
Equipment……………………………………………..xxxx
Investment…………………………….…..………………….xxxx
 The home office also usually acquires insurance, pays property and other taxes, and
arranges for advertising that benefits all branches. Clearly, such expenses as depreciation,
property taxes, insurance, and advertising must be considered in determining the profitability
of a branch.
Expenses……………………………………………..xxxx
Cash…………………………….………...………………….xxxx
 An expense incurred by the home office and allocated to a branch is recorded by:1)
Home office:
Investment in Branch………………………….xxxx
Expense ledger account……………………………..xxxx
2) Branch:
Expense ledger account………………….…...xxxx
Home office…………………………………………..xxxx
Illustrative Journal Entries for Operations of a Branch
Assume that Awash Company bills merchandise to Baro Branch at home office cost and that
Baro Branch maintains complete accounting records and prepares financial statements.
 Both the home office and the branch use the perpetual inventory system.
 Equipment used at the branch is carried in the home office accounting records.
 Certain expenses, such as advertising and insurance, incurred by the home office on
behalf of the branch, are billed to the branch.
Transactions and events during the first year (2006) of operations of Baro Branch are
summarized below (start-up costs are disregarded):
1. Cash of Br 1,000 was forwarded by the home office to baro Branch.
2. Merchandise with a home office cost of Br 60,000 was shipped by the home office to
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Baro Branch.
3. Equipment was acquired by Baro Branch for Br 500, to be carried in the home office
accounting records.
4. Credit sales by Baro Branch amounted to Br 80,000; the branch’s cost of the
merchandise sold was Br45,000.
5. Collections of trade accounts receivable by Baro Branch amounted to Br62,000.
6. Payments for operating expenses by Baro Branch totaled Br20,000.
7. Cash of Br37,500 was remitted by Baro Branch to the home office.
8. Operating expenses incurred by the home office and charged to Baro Branch totaled
3,000.
9. After closing the temporary accounts the branch transfers its net income to the home
office account.
Required: by using periodic inventory
A. prepare a necessary journal entry under home office and branch
B. prepare necessary adjusting entries closing entries
C. Prepare working paper for combined Financial statements
D. prepare Financial statements
E. Prepare Financial statements assume that goods costing br. 60,000 are shipped by Awash
co. to Baro branch and the branch is billed for the goods at 50% above cost.
Solution A)
Home Office Accounting Records Baro Branch Accounting Records
1 Investment in Baro Branch….1,000 Cash .......................................1,000
Cash ...........................................1,000 Home offices..............................1,000
2 Investment in Baro Branch...60,000 Shipment from HO.............60,000
Shipment to B. branch ...........60,000 Home office.............................60,000
3 Equipment:Baro Branch…….500 Home office……………………500
Investment in Baro Branch....…500 Cash……………………………..500
4 None Accounts recivable…….80,000
Sales………………………….80,000
Cost of goods sold……..45,000
Inventories…………………..45,000
5 None Cash………………………62,000
Accounts receivable………..62,000
6 None Operating expense………20,000
Cash………….……….………20,000
7 Cash………………………37,500 Home office..…………….37,500
Investment in Baro Branch…37,500 Cash………….………………37,500
8 Investment in Baro Branch..3,000 Operating expense…….…3,000
Cash………………………….…3,000 Home office…………..………3,000
9 To close temporary Accounts
Investment in Baro Branch..12,000 Sales………………………80,000
Baro Branch Income..…….…12,000 Income summary….……….80,000
Income summary………..68,000

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Baro Branch Income…….…12,000 Operating expenses….……..23,000
Income summary……………12,000 Cost of goods sold................. 45,000
Income summary..............12,000
Home office ...........................12,000

B. Since perpetual inventory system is used no need of adjustment

Billings of Merchandise to Branches
Three alternative methods are available to the home office for billing merchandise shipped to its
branches:
 At cost
 At a percentage above cost
 At the retail selling price
Shipment of merchandise to a branch does not constitute a sale as the ownership does not
change.
Billing at cost
 The simplest and widely used procedure
 Avoids complications of unrealized gross profits on inventories
 Attributes all gross profit to the branches even if some of the merchandise may be
manufactured by the home office
 Merchandise transferred from the home office and billed to the branch is recorded by the
branch in the same way as inventory purchased from external parties, except the credit is
to the Home Office account.
 Billing at home office cost is the simplest procedure and is widely used.
 However, billing merchandise to branches at home office cost attributes all gross profits
of the enterprise to the branches, even though some of the merchandise may be
manufactured by the home office.
 No profit is recognized by the home office on the transfer.

Billing at a percentage above cost

 Intended to allocate reasonable gross profit to the home office
 Under this method, the net income reported by the branch is understated and the ending
inventories are overstated for the enterprise as a whole
 Adjustments must be made to eliminate intra company profits in preparation of combined
financial statements
 Companies sometimes transfer inventory from the home office to a branch and bill the
branch for an amount greater than the home office’s cost.
 This method may be intended to allocate a reasonable gross profit to the home office.
 The home office is credited with profit equal to the difference between its cost and the
transfer price to the branch; this difference is referred to as the intracompany profit.
 The branch’s profit is the difference between the transfer price (the branch’s cost) and the
selling price to external parties.
 Usually the home office records its profit on inventory shipments to its branches in a
separate account, allowing it to defer recognition of profits on intracompany sales until
the inventory is sold to external parties by the branches.
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 Each branch normally records inventory acquired from the home office in an account
separate from inventory purchased from external parties so that the intracompany profit
can be more easily identified.
 When the branch sells the inventory acquired from the home office, it recognizes a profit for
the difference between the external selling price and the transfer price from the home office.
 Once the inventory has been sold externally, the home office recognizes the
intracompany profit that it previously had deferred
Billing at Retail Selling Prices
 Based on a desire to strengthen internal control over inventories
 The home office record of shipments to a branch, when considered along with sales
reported with the branch, provide a perpetual inventory stated at selling price
 Any difference with periodic physical count should be investigated promptly
Example: assume that goods costing br. 60,000 are shipped by Awash co. to Baro branch and
the branch is billed for the goods at 50% above cost. The shipment may be recorded as follows.
HO Books Branch Books
Investment in branch .............90,000 Shipments from HO….... 90,000
Shipment to branch...........................60,000 HO..............................90,000
Unrealized intercompany profit.....30,000

2.1. Financial Statements for Home office and Branch

Before issuing financial statement to users outside the firm, it is necessary to combine the assets,
liabilities, revenues, and expenses of the individual branches with similar accounts of the home
office.
In the preparation of the combined balance sheet, reciprocal ledger accounts are eliminated
because they have no significance when the branch and home office report as a single entity.

The balance of the home office account is offset against the balance of the investment in branch
account; also any receivable and payables between the home office and the branch (or between
two branches) are eliminated.

A convenient staring point in the preparation of a combined balance sheet consists of the
adjusted trial balances of the home office and of the branch.
If a complete set of statements is prepared, a three-part working paper might be used to combine
the accounts of the home office and branch.

Working Paper for Combined Financial Statements

A working paper for combined financial statements has three purposes:
1) to combine ledger account balances for like revenue, expenses, assets, and liabilities
2) to eliminate any intra-company profits or losses and
3) to eliminate the reciprocal accounts
The working paper illustrated below for awash company is based on the transactions and events
illustrated above and additional assumed data for the home office trial balance.
 In the eliminations column, elimination (a) offsets the balance of the Investment in Baro
Branch account against the balance of the Home Office account.

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 This elimination appears in the working paper only; it is not entered in the accounting
records of either the home office or Baro Branch because its only purpose is to facilitate
the preparation of combined financial statements.
i. Combined Financial Statements Illustrated: merchandise billed at cost
The following working paper provides the information for the combined financial statements
(excluding a statement of cash flows) of Awash company.

C) AWASH COMPANY
Working Paper for Combined Financial Statements of Home Office and Baro Branch
For Year Ended December 31, 2006
(Billings at Cost)

Home Office Baro Eliminat- Combined

Branch ions
Dr Cr Dr Cr Dr(Cr) Dr Cr
Income Statement
Sales 400,000 80,000 480,000
Cost of Goods Sold 235,000 45,000 280,000
Operating Expenses 90,000 23,000 113,000
Operating Income 75,000 12,000 87,000
Statement of Retained E
Retained Earnings, Jan. 1 70,000 70,000
Operating Income (above) 75,000 12,000 87,000
Dividends declared 40,000 40,000
Retained Earnings, Dec. 31 117,000
Balance Sheet
Cash 25,000 5,000 30,000
Accounts Receivable 39,000 18,000 57,000
Inventories 45,000 15,000 60,000
Investment in Branch 26,000 (a)(26,000)
Equipment 150,000
Accumulated Depn.-Eqp. (10,000) 140000
Accounts Payable 20,000 20,000
Home Office 26,000 (a)26,000
Common Stock, Br10 par 150,000 150,000
Retained E Dec. 31 (above) 117,000

D) AWASH COMPANY
Income Statement
For Year Ended December 31, 1999
Sales Birr 480,000

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Less: Cost of Goods Sold 280,000
Gross Margin on sales Birr200,000
Less: Operating Expenses 113,000
Operating Income Br87,000
Basic earnings per share of common stock Birr 5.80

AWASH COMPANY
Retained Earnings
For Year Ended December 31, 2006
Retained Earnings, Jan 1 Birr70,000
Add: Operating Income 87,000
Total Birr 157,000
Less: Dividends declared (40,000)
Retained Earnings, Dec. 31 Birr117,000

AWASH COMPANY
Balance Sheet
December 31, 2006
Cash Birr30,000
Accounts Receivable 57,000
Inventories 60,000
Equipment 150,000
Less: Accumulated Depreciation (10,000) 140,000
Total assets Birr287,000
Accounts Payable Br20,000
Common Stock, Br10 par, 15,000 authorized shares 150,000
Retained Earnings 117,000
Total Liabilities Br Stockholders’ Equity Birr287,000
ii. Working Paper When Billings to Branches Are at Prices above Cost
When a home office bills merchandise shipments to branches at prices above home office cost,
preparation of the working paper for combined financial statements if facilitated by an analysis
of the flow of merchandise to a branch, such as the following for Baro Branch of Awash
Company:
E) AWASH COMPANY
Flow of Merchandise for Baro Branch
During 2006
Billed price HO Cost Markup (50ofcost)
Beginning inventories
Add: Shipments from Home Office 90,000 60,000 30,000
Available For Sale 90,000 60,000 30,000
Less: Ending Inventories 22,500 15,000 7,500
Cost of Goods Sold Birr 67,500Birr. 45,000 Birr. 22,500

Ending inventory @ billed price = EI @ cost + 50% (EI @ cost)

Cost of Goods Sold @ billed price = CGS @ cost + 50% (CGS @ cost)

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The foregoing analysis provides in the Markup column the information needed for the
Eliminations column in the working paper for combined financial statements below.

AWASH COMPANY
Working Paper for Combined Financial Statements of Home Office and Baro Branch
For Year Ended December 31, 2006
(Billings above Cost)
Adjusted Trial Balance
Home Office Baro Eliminat- Combine
Branch ions d
Dr(Cr) Dr(Cr) Dr(Cr) Dr(Cr)
Income Statement
Sales (400,000) (80,000) (480,000)
Cost of Goods Sold 235,000 67,500 (a)(22,500) 280,000
Operating Expenses 90,000 23,000 113,000
Operating Income 75,000 (10,500) (b)22,500 87,000
Statement of Retained Earnings
Retained Earnings, Jan. 1 (70,000) (70,000)
Operating Income (above) (75,000) 10,500 (b)(22,500) (87,000)
Dividends declared 40,000 40,000
Retained Earnings, Dec. 31 117,000
Balance Sheet
Cash 25,000 5,000 30,000
Accounts Receivable 39,000 18,000 57,000
Inventories 45,000 22,500 (a)(7,500) 60,000
Investment in Baro Branch 56,000 (c)(56,000)
Unrealized intracompany profit: Baro (30,000) (a)30,000
Branch
Equipment 150,000 150,000
Accumulated Depreciation-Eqp. (10,000) (10,000)
Accounts Payable (20,000) (20,000)
Home Office (56,000) (c)56,000
Common Stock, Br10 par (150,000) (150,000)
Retained Earnings, Dec. 31 (above) (117,000)
a) To reduce ending inventories and cost of goods sold of branch to cost, and to eliminate
unadjusted balance of unrealized intracompany profit: Baro Branch Ledger Account
b) To increase income from home office by portion of merchandise markup that was
realized by branch sales
c) To eliminate reciprocal ledger account balances.

At the end of the period the branch will report its inventories at billed prices of 22,500
(15,000*50%). In the records of the home office the required balance of the Allowance for
Overvaluation of Inventories: Branch X account is 7,500 (22,500-15,000); thus, this account
balance must be reduced to 7,500 from the present amount of 30,000 to represent the excess
valuation contained in the ending inventories of the branch.

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Under the present assumption the branch reports a net loss of 10,500. The adjustment of 22,500
is transferred as credit to Income: Branch X account, because it represents additional gross profit
over that reported by the branch. Thus the actual net income for Branch X is 12,000, the same as
the previous illustration.
The following journal entries are passed in the home office records

Home Office Adjusting and closing Entries and Branch Closing entries
The December 31,2006, adjusting and closing entries of the home office are given below:
Home Office Adjusting and Closing Entries
Income: Baro Branch…………………………………………………... 10,500
Investment in Baro Branch……………………………… 10,500
To record net loss reported by branch
Unrealized intracompany profit: Baro Branch……………...22,500
Realized Gross Profit: Baro Branch Sales ……………….. 22,500
To reduce allowance to amount by which ending inventories of branch exceed cost
Realized Gross Profit: Baro Branch Sales……………………………… 22,500
Income: Baro branch……………………………………… 10,500
Income Summary…………………………………………. 12,000
To close the branch net loss Br realized gross profit to Income Summary ledger account
2.2. Transactions between Branches
 Branches sometimes transfer assets or services from one to another.
 While there are several ways of accounting for such transfers, a commonly used approach is
to treat the transfers as if they went through the home office.
 The branches involved in an inter branch transfer generally account for the transfer as if they
are dealing with the home office rather than with another branch.
 One branch may transfer excessive inventory to another branch that has an inventory
shortage.

Example
Assume that Nice Corporation’s Good branch transfers Birr7,000 of cash and inventory costing
Birr22,000 to the Excellent branch.
 Good branch records the following entry:
Home Office 29,000
Cash 7,000
Inventory 22,000
To record transfer of cash and inventory to Excellent branch.
 The Excellent branch records the transfer with the following entry:
Cash 7,000
Inventory 22,000
Home Office 29,000
To Record the transfer of cash and inventory from Good branch
 The transfer is recorded by the home office as follows:
Investment in Excellent Branch 29,000
Investment in Good Branch 29,000

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To record the transfer of cash and inventory from Good branch to Excellent branch.

Illustration of Decentralized Branch Accounting

1. The home office established Branch #1 near the end of the fiscal year, sending Birr
20,000 in cash and Birr 40,000 in merchandise..
2. The branch purchased on account Birr 20,000 of merchandise, Birr 30,000 of equipments,
and Birr 1,500 of Prepaid Insurance.
3. The branch sold merchandise for Birr 36,000 in cash and Birr 21,000 on account
4. The branch paid operating expenses of Birr 11,300.
5. The branch collected Birr 12,000 on accounts receivable.
6. The branch paid Birr 32,000 on accounts payable.
7. The branch sent Birr 10,000 in cash to the home office.
Required: by using periodic inventory
1. prepare a necessary journal entry under home office and branch
2. prepare necessary adjusting entries closing entries
3. Prepare working paper for combined Financial statements
4. prepare Financial statements

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