C HAPT E R

11

ACCOUNTING FOR BRANCH OPERATIONS

Corporations in Financial Difficulty Not-for-Profit and Governmental Entities Partnerships Reporting Requirements Multinational Entities Multi-Corporate Entities Branch Operations Additional Consolidation Issues Intercorporate Transfers Consolidation Procedures Consolidation Concepts Intercorporate Investments Business Combinations

One route to corporate expansion is the external approach of acquiring other companies in business combinations, as discussed in Chapter 1. Another approach to expansion is through internal growth. While such growth can occur at a single location, companies often expand by establishing additional locations. For example, Wal-Mart’s phenomenal growth would have been impossible had the company not established many new stores at various locations throughout much of the country. When operations are conducted at more than a single location, the different locations may be referred to as sales agencies, branches, plants, or by numerous other terms. Unfortunately, terminology referring to multiple operating locations is not standardized. In addition, many different approaches are taken in establishing internal accounting and reporting systems for companies operating through outlying locations.

Distinction between Sales Agency and Branch
The difference between a sales agency and a branch most often has to do with the degree of autonomy. A sales agency, sometimes referred to simply as an “agency,” usually is not an autonomous operation but acts on behalf of the home office. The agency may display and demonstrate sample merchandise, take orders, and arrange for delivery. The orders typically are filled by the home office because a sales agency usually does not stock inventory. Merchandise selection, advertising, granting of credit, collection on accounts, and other aspects of operating the