BRANCH ACCOUNTS
MODULE 4……
BRANCH ACCOUNTS
A branch is a segment of a business.
It is a chain of shops functioning in different localities under the control of
the head office.
The system of operating business at several places through one’s own
establishment s is called branch organization.
Branch accounts are accounts relating to different branches and are used to
ascertain the trading result of each branch separately.
Need or Objectives of Branch Account
The various objects of maintaining branch account are:-
(1) To ascertain profit or loss of each branch.
(2) To ascertain the financial position of each branch.
(3) To help in controlling branches.
(4) To assess the progress and performance of each branch.
(5) To ascertain the requirements of stock and cash for each branch.
(6) To ascertain whether the branch should be expanded or closed.
Types of Branches
Branches may be divided into
(1) Dependent branches ( branch not keeping full system of accounting)
(2) Independent branches ( branch keeping full system of accounting)
(3) Foreign branches.
Dependent Branches
Dependent branches are branches, which don’t maintain its own set of books. All
records have to be maintained by the head office.
The following are the features of such a branch:
1) These branches sells only such goods, which are supplied by the head office
2) The head pays all branch expenses
3) The branch manager out of petty cash book pays some petty expenses.
4) Such banks are instructed to deposit daily cash proceeds in to bank account
opened in the name of head office
5) Sales are generally made on cash basis but some branches are authorized to
make credit sales also.
6) Branches keep only some memorandum records
7) There are four methods of accounting for
dependent branches namely
a. Debtors system
b. Stock and debtors system
c. Final account system
d. Wholesale branch system
1.Debtors System
Under this method, head office opens only one
account for each branch called branch account.
Its purpose is to ascertain the profit or loss made by
each branch.
Such branch account is nominal in nature.
2.Stock and Debtors System
In case of this system, the head office maintenance a number
of accounts for branch transactions in place of in branch
account.
The various accounts are:
1. Branch stock account
2. Branch debtors account
3. Branch expenses account
4. Branch adjustment account
5. Branch profit and loss account
6. Branch cash account
7. Branch fixed asset account
8. Goods sent to branch account
3.Final Account system
Under this system head office opens
(1) Branch trading and profit and loss account
(2) Branch account.
It is personal account in nature.
4.Whole Sale Branch System
This system is adopted when the head office supplies
goods to the branch at a price which it supplies to
wholesalers.
Thus under this system, branch is treated at par with
wholesale branch.
Independent Branches
Independent branch means a branch which maintains its own
set of books.
In this system, branches are treated as separate independent
units.
Features of such branches may be summarized as below
1) They keep a full system of accounting and trial balance can be
extracted from the ledger
2) In the branch books, there will be a head of accounts and in
the books of head office there will be a branch account
3) The branch does not confine its trading to the goods sent by
the head office
4) There is no need for the branch to remit all cash. It can retain
the cash out of which it can make the payment.
Difference between Departmental and Branch
Accounting
BASIS OF DEPARTMENTAL BRANCH
DIFFERENCE ACCOUNTING ACCOUNTING
Departments are attached
Branches are separate
with the main
LINKAGE from the main
organization under a
organization.
single roof.
GEOGRAPGICAL Departments are not Branches are
LOCATION geographically separated. geographically separated.
The branches may be
There is no classification
TYPES dependent or
of departments.
independent.
Allocation of There is no need of
ALLOCATION OF
departmental common allocation of branch
EXPENSES
expenses is a tough job. expenses.
BASIS OF DEPARTMENTAL BRANCH
DIFFERENCE ACCOUNTING ACCOUNTING
In departmental accounts,
To find out the net result of
no reconciliation is
organization the
RECONCILIATION required because there is
reconciliation of different
no central account
branch is a main job.
division.
Departmental trading with Branch trading is
their head office is conducted in different
conducted under the same parts of the country under
TRADING
roof although each the head office dealing
department deals with with usually the same line
separate line of activity. of activity.
The profitability position
The profitability of each
of department is seen
branch is equally
PRFOITABILITY within the larger picture of
important and seen
a parent organizational
separately.
profits.
BASIS OF DEPARTMENTAL BRANCH
DIFFERENCE ACCOUNTING ACCOUNTING
There are various methods
There are only two
of preparation of accounts
METHODS OF methods: Separate set of
like Stock and debtors
PREPARATION OF books are maintained
system Debtors system
ACCOUNTS Separate set of books are
Final accounts system
not maintained.
Wholesale price system
The accounts maintained
The accounts maintained
are: Branch stock account
are; Departmental trading
ACCOUNTS Branch adjustment
and profit and loss account
MAINTAINED account Branch debtors
General profit and loss
account Branch expenses
account
account
BASIS OF DEPARTMENTAL BRANCH
DIFFERENCE ACCOUNTING ACCOUNTING
The chief executive who is Control is unpracticable in
to keep a constant watch case of a far off branch
CONTROL over the department since it is not possible for
supervisor closely and the head office to keep
supervises effectively. instant watch.
Departmental accounting
Branch accounts are a
NATURE is practically a segment of
condensation of accounts.
accounts.
These are comparatively Branch accounts are costly
less costly as a small team to maintain as it involves a
EXPENSIVE of accountants can be big team of accountants to
appointed to maintain the maintain accounts for each
accounts. branch.
