Branch Accounting ~ Advance Financial Accounts

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Meaning

Branch refers to a part of an organization which deals in the business pursed by the organization. Relationship between HO and branch can be understood in terms of 'Father and Son’ relationship.

 

Types of Branches

From the accounting port of view branches can be divided into two categories as under:

 

·         Dependent Branches: The branches wholly dependent, are called dependent branches. Such branches act merely as selling agencies. Dependent branches do not keep any books of account; accounts are maintained only in the books of head office. These branches keep only a few essential records and furnish the necessary periodical information to the head office. Dependent branches are also known as ‘Branches not keeping full system of accounting.

 

Methods of Accounting: There are four methods of accounting for dependent branches which are as follows:

 

(1)     Branch Debtors Method: This system of accounting is suitable for the small size branches. Under this a branch account is opened  for each in the head office Ledger.

Head office may send goods to branch at either at cost price or selling price.

(a)Cost price method

(b)Selling price Method (Invoice price)

 

(a)   When goods sent to Branch at cost price

RULES:

(i)                 Branch a/c is opened in the books of H.O.

(ii)               Show opening balances of stock. Debtors. fixed assets and petty cash on the Dr. side of Branch ac

(iii)             Show opening balances of liabilities on the Cr. Side of  the Branch Ac

(iv)             Goods sent to Branch by H.O.  Will be shown on Dr.  Side of Branch a/c 

(v)               Goods returned to H.O. by Branch will be shown on Cr. Side of the Branch a/c.

(vi)             Branch expenses paid by H.O. will be shown on Dr. side of Branch a/c.

(vii)           Branch expenses paid by Branch itself will not be shown in the Branch a/c.

(viii)         If the Branch is making credit sales then 'memorandum branch debtors a/c’ will be prepared

(ix)             Cash and Good in transit.

(x)               Inter Branch transfer

(xi)             Purchase of Fixed Assets by Branch

(xii)           Purchase of Fixed Assets by H.O.

(xiii)         Theft, Loss or wastage of Goods: No entry in Branch a/c only insurance claim is shown on the credit side. In case to calculate the closing stock such loss will be shown on credit side of Branch Stock a/c.

 

 

(b)   When goods sent to Branch at selling price/ invoice price/ inflated price.

RULES:

·         Opening Stock, Closing Stock, Goods sent to branch, Goods returned by branch will be shown at invoice price in Branch a/c.

·         Loading on above items should be shown opposite side of each account in Branch a/c.

·         Loading on opening stock and closing stock will be shone by the name ‘Branch Stock Adjustment

·         Loading on Goods sent to Branch a/c and Goods returned by branch will be shown by the name ‘Goods sent to Branch Adjustment a/c’.

·         Loading on Goods in Transit w4ll be shown by the name ‘Goods in Transit Adjustment a/c.

·         All other things mill remain the same as in the Branch a/c at cost price.

·         Sometimes it may be asked to prepare Branch Adjustment a/c. In such situation the loading mill be shown in the Branch Adjustment a/c instead of Branch a/c.

 

Note: Loading should be calculated as a percentage on invoice Price. If it is given on cost then it should be converted to Invoice price.



2. Branch stock & Debtors Method: This method of Branch Accounting is the perfect   accounting  method for the dependent branches. It is utilized when the branch business is expanded and difficult to prepare ‘Branch arc’. It is more expanded form of the Branch Debtors Method.

 

(a)   When goods sent to Branch at cost price.

 

RULES:

 

(I)                Mainly five accounts are prepared

•  Branch Stock Account

•  Goods sent to Branch Account

•  Branch Debtors Account

•  Branch Expenses Account

•  Branch P&L Account

(II)             Branch stock Account works as ‘Trading Account’ of the Branch. Gross Profit or Gross Loss is transferred to Branch P&L Account.

(III)          Goods sent to Branch Account records only the goods send by H.O. to Branch and goods returned by Branch to H.O. and balance is transferred to H.O. Trading Account.

(IV)          Branch Debtors Account is the Normal Debtors Account and records all items related to debtors.

(V)             Branch Expenses Account records all expenses done by Branch or H.O. It also records     the bad debts, Discount allowed, allowances etc.

(VI)          Total of Branch expenses account is transferred to Branch P&L Account.





 

       (b)   When goods sent to Branch at selling price/ invoice price/ inflated price.

 Rules

 (i)                 Mainly seven accounts are prepared

·         Branch Stock account

·         Branch Goods sent to branch Account

·         Branch Debtor’s account

·         Branch Expenses Account

·         Branch Stock Reserve Account

·         Branch Adjustment .Account

·         Branch P&L account

(II)              Branch Debtor’s Account and Branch Expenses .Account will remain same as in the previous case

(III)            Branch Adjustment Account will work as ‘Branch Trading Account

(IV)           All items related to stock will be show in at invoice pi ice in Branch Stock account.

(V)              Loading on opening and closing stock will be recorded in the branch stock reserve account and from there will be transferred to branch adjustment account.

(VI)           Loading on goods sent to branch by HO and goods returned by branch to HO will be recorded in the goods sent to branch account and from there will be transferred to Branch Adjustment account closing balance of the account will be transferred to HO Trading account.


3. Final Account Method


Rules:

 

        i.            Branch Trading and P&L account will be prepared

      ii.            Opening stock, Closing stock, Goods sent to branch and goods returned by branch will be       shown at cost price in the trading account.

    iii.            Branch account will be prepared as a personal account.

    iv.            Items in the Branch account will be recorded at cost price.

      v.            Balance of this account shown amount receivables or payable.

 

 

4.      Wholesale Price Method:

Goods are sent to Branch at wholesale price instead of cost and selling price. The profit of H.O. and Branch are calculated separately.

 

Rules

  

4.      Wholesale Price Method:

Goods are sent to Branch at wholesale price instead of cost and selling price. The profit of H.O. and Branch are calculated separately.

 

Rules

(i) All accounts will be prepared as prepared for Branch Stock & Debtors method at cost price.

(ii) Profit of the H.O. = Wholesale price — Cost of goods

(iii) Profit of Branch  =  List Price — Wholesale Price

(iv) Branch Stock Reserve Account will be prepared by H.O. to show the loading on opening and           closing stock of the branch and this loading will be transferred to H.O. P&L Account.

(v)  List price means the market price of the goods at which they are sold

(vi) Value of the goods in Branch Stock will be shown at wholesale Price

(vii)  Calculation Closing Stock;

         

Wholesale Price of the opening stock

Add: Goods sent to Branch at wholesale price

Less: Goods returned by Branch at wholesale price Less: Wholesale price of the goods sold

Less: Wholesale price of the goods destroyed

 

Branch Accounting Sums Video Link


Video part 1 --->   



https://www.youtube.com/watch?v=PsImhUC3WZM&t=37s

Video part 2 --->  https://www.youtube.com/watch?v=wLpMVaLvjmw










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