Agency Accounts
What has been said with regard to the difficulty of presenting a widely applicable statement of branch accounts is equally true of agency accounts. There is no well-marked line of distinction between agency and branch organization. What may be termed an agency by one concern will be looked upon as a branch by another concern. For the purpose of this discussion, however, the distinction stated above between these two forms of organization will be adhered to. Where, therefore, the agency is for the most part simply a sales agency, practically nothing in the way of accounts and accounting control is necessary other than what must always be used in connection with traveling salesmen. The agency must be furnished with an expense fund and must, of course, send in to the head office all its orders and sales. The expense fund is best operated under the imprest system. To keep track of the results of the various agencies it will be necessary on the head office books to keep the records of the activities of each branch separate from one another and from those of the head office. At the close of the fiscal period a comparison of agency sales with the direct costs of making those sales and with the expenses of maintaining the agency will develop the net result of the agency’s activities. The problem, therefore, of agency accounting is simply one phase of the general problem of accounting, viz., furnishing, by means of whatever analysis may be necessary, the information which will be of greatest advantage, to the management of the business.
Branch Accounting Records
The accounting records of the branch will be simple or complex according to the conditions to secure control over which they must give information. Sometimes a very simple set of records will furnish all the data needed. In other cases just as elaborate detailed records as are employed at the head office may be required to secure the information desired. Sometimes it may appear best for the branch to keep but few records, and for the head office to keep all the main accounting records by means of duplicate reports of all branch transactions. Again, to exercise proper control over the branch, even where it keeps a full set of records, it may be advisable to require periodic reports of all branch activities. Sometimes these are required daily, but more often a weekly or monthly summary of activities serves the purpose equally well.
Illustration of Simple Branch Accounts
The simplest method of keeping the branch and head office accounts can be illustrated by a short problem in summarized form. In the illustration given it is assumed that the head office furnishes the cash necessary to inaugurate the branch, and that all stock-in-trade is supplied by the head office. It is further assumed that the branch keeps a complete set of records which will furnish information as to profits and losses at the close of the fiscal period. On the branch books it will be necessary to open accounts with Merchandise (here, for the sake of brevity, carried under one title rather than as usually shown), with Cash, with Expenses (again, for the sake of brevity, carried under one head), with the Head Office, and with Profit and Loss. These accounts present no peculiarities excepting the Head Office account which stands on the branch books as the net worth or proprietorship account. It is credited with all values received from the head office and charged with all values returned to the head office or expended on head office account. The net profit for the period is closed from the Profit and Loss account into the Head Office account in order to show the present net worth or proprietorship with which the branch enters the new fiscal period.
On the head office books there need be carried only an account with each branch by name or number. The charges and credits in this account are the exact reverse of those in the Head Office account carried on the branch books. At the close of the fiscal period it is necessary to receive the report of the branch profit or loss before that can be incorporated in the branch account on the head office books. The following problem will show the manner in which these accounts are kept.
Problem. The head office sends to the branch during the year $5,000 cash and $50,000 worth of merchandise. The branch makes sales to customers on account amounting to $45,000 and cash sales of $10,000. It incurs expenses of $7,500. Its collections from customers on account amount to $25,000. It remits $37,000 to the head office. The inventory of merchandise at the close of the year is found to be $12,500.
| Solution | ||
| Branch Books | ||
| Cash | $ 5,000.00 | |
| Head Office | $ 5,000.00 | |
| Merchandise | 50,000.00 | |
| Head Office | 50,000.00 | |
| Customers | 45,000.00 | |
| Merchandise | 45,000.00 | |
| Cash | 10,000.00 | |
| Merchandise | 10,000.00 | |
| Expense | 7,500.00 | |
| Cash | 7,500.00 | |
| Cash | 25,000.00 | |
| Customers | 25,000.00 | |
| Head Office | 37,000.00 | |
| Cash | 37,000.00 | |
| Merchandise (Inventory) | 12,500.00 | |
| Merchandise | 12,500.00 | |
| Merchandise | 17,500.00 | |
| Profit and Loss | 17,500.00 | |
| Profit and Loss | 7,500.00 | |
| Expense | 7,500.00 | |
| Profit and Loss | 10,000.00 | |
| Head Office | 10,000.00 | |
| Head Office Books | ||
| Branch | $55,000.00 | |
| Cash | $ 5,000.00 | |
| Merchandise | $50,000.00 | |
| Branch | 10,000.00 | |
| Branch Profit and Loss | 10,000.00 | |
In making up the head office balance sheet, the Branch account as carried on the head office books will be an asset representing the property of the head office invested in the branch. Instead of carrying this property under the title “Branch,” it is sometimes desirable to include all branch values with similar values at the head office. This results in a balance sheet which is similar to the consolidated balance sheet explained in [Chapter XXXIV].