Branch Accounting
-
Upload
bilalyasir -
Category
Documents
-
view
66 -
download
6
description
Transcript of Branch Accounting
Presented By:Bilal Yasir
M.Rahat Javaid Razi-ud-din
Zuhaib FarooqAsad SattarAteeq Taj
Noree n MalikUswah TahirAyesha Tahir
Branch Accounting
Branch AccountingIntroduction
As a business flourishes, it becomes necessary to open up branches in various other towns and cities in order to market its services/products which results in the increase of its profits.
“A branch is generally defined as a section of an enterprise that is geographically separated from the rest of the business.”
The activities of the branch are controlled by a head office and usually it carries on the same functions as of enterprises. For example Service Shoes Co. Ltd has branches in different countries.
Branch Accounting
Branch is not a separate legal entity; it is simply a segment of business.
In order to exercise great control over the branches it is necessary to ascertain profit or loss made by such branches separately.
The head office and branch keep proper book of accounts.
Need for Branch Accounting
Ascertain profit of each branch separatelyAscertain the financial position of each branchAsses the progress and performance of each
branches.Fulfill the audit requirement under companies
ordinance 1984.Ascertain the quantity of stock held by each
branch at the end of that accounting period
Types of Branches
Types of Branches
Foreign Branches
Dependent Branches
Independent Branches
Home Branches
Types of Dependent Branches
Types of Dependent Branches
Retail selling Branches
Booking order on behalf of the
head office
Executing orders from Head Office
Services Branches
Goods transferred From Head office
at costWholesale price
Goods transferred From head office at
loaded (invoice) price
Accounting arrangement of Retail Dependent Branches
The Accounting arrangement of a branch depends upon its size, the type of activities, the method of operation and degree of control to be exercised by head office.
The Main methods of accounting for branch transaction are:1. Debtors System2. Stock and Debtor system3. Final account system
Accounting arrangement of Retail Dependent Branches
Debtor systemThis system of accounting is suitable for the small size
branches. Under this a branch account is opened for each branch in the head office ledger.
Head office may send goods to branch at either at cost price or selling price.
1. Cost price method2. Selling price method (Invoice price)
Accounting arrangement of Retail Dependent Branches
1. Cost price method:• Under this method at the beginning of the year branch account is debited with
the opening balance of assets such as stock (at cost), debtors, petty cash, furniture, prepaid expenses, accrued income, lying with the branch.
• Similarly, it is credited with the opening balances of liabilities of the branch such as creditors, outstanding salaries, rent.
Journal entry:
1. Branch Account Dr.Branch Assets Account (Individual)
2. Branch Liabilities Account (Individual) Dr.Branch Account
Accounting arrangement of Retail Dependent Branches
In the books of Head officeBranch Account
Date Particulars Rs Date Particulars Rs
Jan. 1 Branch b/dStock DebtorsPetty CashFurniturePrepaid expenses
Jan.1 Balance b/dCreditorsOutstanding Salaries
Accounting arrangement of Retail Dependent Branches
1. Cost price method:• Branch Accounting is then debited with the amount of
goods sent to the branch (at cost) and other amount remitted to meet various expenses such as, salaries rent and taxes etc.
• Branch account is credited with the return of goods (at cost) by the branch and receipts from debtors and cash sales.
• At the year end, branch account is debited with the closing values of liabilities and credited with the closing values of assets.
• The Difference between the two sides represents profit or loss for the branch for a particular period.
Accounting arrangement of Retail Dependent Branches
1. Cost price method:Journal entries
For goods sent to branch:Branch Account Dr.
Goods sent to Branch Account
Accounting arrangement of Retail Dependent Branches
In the books of Head officeBranch Account
Date Particulars Rs Date Particulars Rs
Jan. 1 Branch b/dStock DebtorsPetty CashFurniturePrepaid expenses
Jan.1 Balance b/dCreditorsOutstanding Salaries
Dec. 31 Goods sent to branch A/c
Accounting arrangement of Retail Dependent Branches
1. Cost price method:Journal entries
For goods sent to branch:Branch Account Dr.
Goods sent to Branch AccountFor remittance of Cash/cheque to branch for expenses e.g Salaries, rent, petty expenses
Branch Account Dr.Cash/bank Account
Accounting arrangement of Retail Dependent Branches
In the books of Head officeBranch Account
Date Particulars Rs Date Particulars Rs
Jan. 1 Branch b/dStock DebtorsPetty CashFurniturePrepaid expenses
Jan.1 Balance b/dCreditorsOutstanding Salaries
Dec. 31 Goods sent to branch A/cBank A/c
Rent, Rates & TaxesPetty Cash remittance
Accounting arrangement of Retail Dependent Branches
1. Cost price method:Journal entries
For goods sent to branch:Branch Account Dr.
Goods sent to Branch AccountFor remittance of Cash/cheque to branch for expenses e.g Salaries, rent, petty expenses
Branch Account Dr.Cash/bank Account
For cash/cheque received from branch (Cash sales plus collection from debts)Cash/Bank Account Dr.
Branch Account
Accounting arrangement of Retail Dependent Branches
In the books of Head officeBranch Account
Date Particulars Rs Date Particulars Rs
Jan. 1 Branch b/dStock DebtorsPetty CashFurniturePrepaid expenses
Jan.1 Balance b/dCreditorsOutstanding Salaries
Dec. 31 Goods sent to branch A/cBank A/c
Rent, Rates & TaxesPetty Cash remittance
Dec.31 Bank A/cCash salesCollection from debts
Accounting arrangement of Retail Dependent Branches
1. Cost price method:Journal entries
For goods sent to branch:Branch Account Dr.
Goods sent to Branch AccountFor remittance of Cash/cheque to branch for expenses e.g Salaries, rent, petty expenses
Branch Account Dr.Cash/bank Account
For cash/cheque received from branch (Cash sales plus collection from debts)Cash/Bank Account Dr.
Branch AccountFor closing balance of assets at the branch:
Branch Asset A/c Dr.Branch Account
Accounting arrangement of Retail Dependent Branches
In the books of Head officeBranch Account
Date Particulars Rs Date Particulars Rs
Jan. 1 Branch b/dStock DebtorsPetty CashFurniturePrepaid expenses
Jan.1 Balance b/dCreditorsOutstanding Salaries
Dec. 31 Goods sent to branch A/cBank A/c
Rent, Rates & TaxesPetty Cash remittance
Dec.31 Bank A/cCash salesCollection from debtsBalance c/d
Stock DebtorsPetty CashFurniturePrepaid expenses
Accounting arrangement of Retail Dependent Branches
1. Cost price method:Journal entries
For Closing balances of liabilities at the branch:Branch Account Dr.
Liabilities account (Individual)
For transferring profit and loss; if profitBranch Account Dr.
To General Profit and loss A/c
For transferring profit and loss; if lossGeneral profit and loss Account Dr.
To Branch AccountIt should be noted that the closing balances of branch asset and liabilities are shown in balance sheet
Accounting arrangement of Retail Dependent Branches
In the books of Head officeBranch Account
Date Particulars Rs Date Particulars Rs
Jan. 1 Branch b/dStock DebtorsPetty CashFurniturePrepaid expenses
Jan.1 Balance b/dCreditorsOutstanding Salaries
Dec. 31 Goods sent to branch A/cBank A/c
Rent, Rates & TaxesPetty Cash remittance
Balance c/dCreditorsOutstanding Expenses
General Profit and loss A/c(Profit)
Dec.31 Bank A/cCash salesCollection from debtsBalance c/d
Stock DebtorsPetty CashFurniturePrepaid expenses
General Profit and loss A/c(Loss)
Accounting arrangement of Retail Dependent Branches
1. Cost price method:Journal entries
For Abnormal loss:Abnormal loss account Dr. (Total)
Branch Account
General profit and loss Account Dr. (Loss)Insurance claim Account Dr. (Claim)
Abnormal loss Account
Accounting arrangement of Retail Dependent Branches
Illustration A ltd had a branch office at Sialkot. The following were the transactions took
place between Head office and its branch office for the year ending 31 December 2009.
Branch opening Stock 1.1.2009 3000
Goods sent to Branch 67000
Goods sent to branch for expenses:Salaries, Rent, Telephone, Petty Cash 4950
Cash sent to Head office 79000
Branch stock on 31.12.2009 8000
Branch cash balance 100
Accounting arrangement of Retail Dependent Branches
In the books of Head officeSialkot branch Account
For the year ended 31 Dec. 2009
Particulars Rs Particulars Rs
Opening StockGoods sent to branch
Cash for salariesCash for rent Cash for telephoneCash for petty cash
General profit and Loss (Net profit)
3,00067,000
4,950
12150
Cash (from branch)Closing balances stockClosing balance cash
79,0008,000100
87,100 87,100
Accounting arrangement of Retail Dependent Branches
2. Invoice Price Method• It is the method of sending goods to its branches at
sale price.
• Methods of selling goods at invoice price is excellent from the point of view of stock control.
• Goods may be invoiced at selling price to keep the margin of profit a secret from the branch manager.
Accounting arrangement of Retail Dependent Branches
2. Invoice Price Method• Journal Entries
For loading on opening stockStock reserve Account Dr.
Branch Account
For goods sent to branchBranch Account Dr.
Goods sent to branch account
For return of goodsGoods sent to branch account Dr.
Branch Account
For loading (Net) on goods sent to branchGoods sent to branch Dr.
Branch Account
Accounting arrangement of Retail Dependent Branches
2. Invoice Price Method• Journal Entries
For loading on Closing StockBranch Account Dr.
Stock Reserve Account
For transferring profit and loss; if profitBranch Account Dr.
General profit and loss account
For transferring profit and loss ; if lossGeneral profit and loss Dr.
Branch Account
Rest of the entries are same as of cost price method.
Accounting arrangement of Retail Dependent Branches
2. Invoice Price Method• Journal Entries
For Abnormal lossa) Abnormal loss Dr.(Invoice price)
Branch Account
b) Branch Account Dr. (Loading on abnormal loss) Abnormal loss
c) Bank Account Dr. (Insurance claim received) General profit and loss account Dr. (Loss)
Abnormal loss Account
Accounting arrangement of Retail Dependent Branches
2. Invoice Price MethodIllustration
The Naveed Stores ltd, Multan has a branch at hyderabad. Goods are invoiced to the branch at a selling price, being cost plus 25%. The branch keeps its own sales ledger and deposits all cash received daily to the credit of the head office account opened at the MCB, Hyderabad. All expenses are paid by cheque from multan.
Stock on 1.1.01 30,0000
Stock on 31.12.01 36,000
Sundry debtors 1.1.01
16,800
Sundry debtors 31.12.01
21,600
Goods invoiced from H.O
2,18,400
Rent, rates and taxes 9,600
Sundry Expenses 1920
Cash sales for the year 1,29,600
Credit salesCash received from the debtorsWages paid
84,000
79,2008,960
Books of Naveed Stores Ltd.Hyderabad Branch A/c
For the year ended 31 Dec. 2001Date Particulars Rs Date Particulars Rs
01.01.01
BalancesStockDebtorsGoods sent to branches
Cash----ExpensesRent, rates and taxesSundry expensesWages
Stock reserve(36000*1/5)General profit & loss
30,00016800
2,18,400
9,600
1,9208,960
720023200
31.12.01
Cash—salesCash--- debtorsBalances:StockDebtors
Goods sent to branches (218400*1/5)
Stock reserve(30,000*1/5)
12960019200
3600021600
43680
6000
3,16,080 3,16,080
Accounting arrangement of Retail Dependent Branches
Accounting arrangement of Retail Dependent Branches
2. Stock and Debtor SystemStock and debtor system is generally used when the goods are sent to the branches at an invoice price and the size of the branch is large.
These accounts usually are i. Branch Stock Account;ii. Branch Debtor Accountiii. Goods sent to branch accountiv. Branch adjustment accountv. Branch cash accountvi. Branch Expense Accountvii. Branch Profit and loss Accountviii. Branch Fixed Asset Account
Stock and Debtor System
A. Branch Stock Account;a) Branch Stock Account is a practical means of controlling stock at branch.b) It is maintained at invoice pricec) Actual Stock with the branch is shown as the balance in this account.
Date Particulars Rs Date Particulars RsJan. 1 Branch b/d
In transitAt branch
Jan.1 Balance b/dCreditorsOutstanding Salaries
Dec. 31 Goods sent to branch A/cBank A/c
Rent, Rates & TaxesPetty Cash remittance
Dec.31 Bank A/cCash salesCollection from debtsBalance c/d
at branchIn transit
Stock and Debtor System
B. Branch Debtors AccountWhen branch is allowed to sell goods on credit. It is used to exercise control over branch debtors. It is prepared like sundry debtors account.
Date Particulars Rs Date Particulars RsJan. 1 Branch b/d Jan.1 Balance b/d
Dec.31
Jan. 1
Branch Stock A/c(Credit sales)
Balance b/d
______
Dec.31 Bank A/c CollectionBranch expense A/cDiscount allowedBad debtsBranch Stock A/c (Returned)Balance c/d __
__
Stock and Debtor System
C. Goods sent to Branch AccountGoods sent to branch account is credited with the invoice price of goods sent to the branch by the head office and transferred from other branches and debited with the invoice price of the goods returned/transferred by the branch.
Date Particulars Rs Date Particulars RsJan. 1 Branch b/d Jan.1
Dec.31 Branch Stock A/c (Returns)Branch Account A/c (Transfer)Branch adjustment account(Loading)
Purchases/ trading A/c*
Dec.31 Branch Stock A/cBranch Stock A/c (Transfer)
Stock and Debtor System
D. Branch Cash AccountBranch Cash Account is prepared with a view to exercise control over the branch cash. The account is generally opened where the branch is allowed to hold cash received from debtors and use it for branch expenses and remit the balance to head office after certain interval.
Date Particulars Rs Date Particulars RsJan. 1 Branch b/d Jan.1 Balance b/d
CreditorsOutstanding Salaries
Dec. 31 Goods sent to branch A/cBank A/c (Remittance)Bank A/c (Transfer from other branch)
Dec.31 Bank A/c(Remittance to H.o)Branch expense a/cBank A/c (Transfer to other branch)Balance c/d
Stock and Debtor System
E. Branch Expense AccountBranch expense records all branch expenses in cash. In addition, this account is debited with the item like bad debts, discount allowed, depreciation on branch fixed assets, etc. The balance of this account is transferred to branch profit and loss account and thereby closed.
Date Particulars Rs Date Particulars RsJan. 1 Branch b/d Jan.1 Balance b/d
CreditorsOutstanding Salaries
Dec. 31 Branch Cash A/c (Returns)Branch Assets A/c(Depreciation)Branch Debtors A/c
Bad debtsDiscount allowed
Dec.31 Branch Profit and loss A/c
Stock and Debtor SystemF. Branch (Stock) Adjustment Account
It is prepared to ascertain gross profit of the branch. This account summarizes the profit “loading” on all transactions. This account is credited with the stock reserve on opening stock and loading on net good sent to branch. It is credited with the loading on surplus in stock.
Date Particulars Rs Date Particulars RsJan. 1 Branch b/d Jan.1 Balance b/d
CreditorsOutstanding Salaries
Dec. 31 Shortage in stock A/c (Loading)Loss by fire A/c (Loading)Loss in transit (Loading)Loss by theft(loading)Pilferage A/c (Loading)Stock reserve* (Loading on closing stock)Gross profit c/d
Dec.31 Stock reserve A/c*(Loading on opening stock)Goods sent to branch A/c(Loading on net goods sent)Surplus in stock A/c(Loading on surplus)
Gross Loss c/d
Stock and Debtor System
G. Branch Fixed assets AccountThe head office may maintain separate asset accounts for each fixed assets. This account is debited with the opening value of asset and purchase of an asset, if any. This account is credited with the depreciation provided on the asset.
THANK YOU!Made by: Mr. Bilal Yasir
+92345-8703330