BRANCH ACCOUNTING

BRANCHACCOUNTING

INTRODUCTION : In order to increase the sales , business houses

are required to market their products over a larger territory and may generally split their business into certain divisions or parts . If the various parts are located in different parts of the city , different cities or in different countries like germany , australia etc , these are known as branches . Head office controls the activities of various branches .

OBJECTIVES OF BRANCH ACCOUNTING :

The main object of keeping branch accounts is dependent on the nature of business and specific need of a particular branch.

To know the profit or loss of each branch . To ascertain financial position of each branch on a

particular date. To know the cash and goods requirement of the

various branches. To evaluate the progress and performance of each

branch .

4

The transaction between headquarters and branch offices

The type of current transactions between headquarters and branch The establishment of new branchesTransfer between headquarters and branch stock in trade

Different types of transactions under the account settings

When setting up a new set of branches between the subjectsHeadquarters set up "branch exchange"Branches set up "between the headquarters”

Transfer between headquarters and branch stock in tradeHeadquarters set up "branches Stock delivered"Branches set up "headquarters shipped inventory."

To calculate commission for payment to the managers if based on profits of branch .

To know the profitability of each branch and type of business for expansion of the business .

To give concrete suggestions for the improvement in the working of various branches .

To meet the requirements of specific enactments as all branches of a company must keep the accounts for audit purposes .

TYPES OF BRANCHES : (A) . Branches not keeping full system of

accounting (dependent branches) . (B) . Branches keeping full system of accounting

(independent branches) . (C) . Foreign branches . Features of dependent branches are : Such branches sell only those goods which are

received from the head office and are not usually allowed to make purchases in the open market .

Goods are supplied by the head office to such branches either at cost price or at invoice price .

All expenses of the branch such as rent , salary or staff , advertisement etc are paid by the head office.

Petty expenses such as cartage , entertainments etc are paid out of petty cash book balance .

The amount received from cash sales or cash received from debtors is either remitted to the head office daily or deposited in the account of head office at some local bank .

The branch manager is normally expected to sell the goods for cash only but he may be authorized to sell goods on credit in certain cases .

Such branches do not maintain their own books of account . All records are maintained by the head office .

8

Goods in Transit (GIT) Goods were sent by the Head Office

before the end of the financial period, but received by the branch after the end of the financial period

GIT =Goods Sent to Branch – Goods received from HO

9

Remittances/Cash in Transit (CIT) The remittance or cash was remitted by

the branch before the end of the financial period, but was received by the Head office after the end of the financial period

CIT= Remittance to Head Office – Remittance from

Branch

10

Accounting treatment of the new branch accounting treatment

Branch accountHeadquarters contacts

Headquarters accountBetween branches

15 000

15 000

11

The treatment of Headquarters transfering goods to the branch

Headquarters account Transction between branches Delivery of branch inventory

8 000 8 000

12

Branch account transported to the headquarter headquarters

contacts

8 000 8 000

TREATMENT OF TRANSACIONS IN THE BOOKS OF HEAD OFFICE

AND BRANCH

14Transactions Head office

(HO) booksBranch books

1 Opening Stock Dr HO Trading Cr Stock (opening stock)[at cost]

Dr Branch TradingCr Stock (Opening stock)[at Cost or Cost+profit]

2 Goods purchased directly from HO suppliers[at cost]

Dr Purchase(Trading)Cr Creditors

No entry

3 Goods purchased directly from Branch suppliers [at cost]

NO entry Dr Purchase(trading)Cr Creditors



4 Goods sent from HO to Branch [cost+profit]

Dr Branch a/cCr Goods sent to Branch

Dr Good received from HOCr Ho a/c

5 Goods returned from Branch to HO

Dr Goods sent to branchCr Branch a/c

Dr HO a/cCr Good received from HO

6 Cash sales/Credit sales

Dr HO Cash/DebtorsCr HO Sales

Dr Branch cash/ debtorsCr Branch sales



7 Closing stock Dr Stock(Closing)Cr HO Trading

Dr Stock (Closing)Cr Branch Tradinggood purchased directly from Branch suppliers [at cost] & goods received from HO [cost+profit]

8 Gross profit on trading

Dr HO TradingCr HO profit and loss

Dr Branch TradingCr Branch profit and loss

9 HO expenses paid by HO

Dr Expenses (P&L) Cr Cash/Bank

No entry



10 Branch expenses paid by Head Office

Dr Branch a/cCr Cash/Bank

Dr Expenses (P&L)Cr HO a/c

11 Branch expenses paid by Branch

No entry Dr Expenses (P&L)Cr Cash/Bank

12 Administrative charges for services rendered by HO to Branch

Dr Branch a/cCr HO P&L (Income)

Dr Branch P&LCr HO a/c



13 Provision for Unrealized Profit (Branch & Goods in Transit)[cost+profit]

Increase in provisionDr HO P&LCr Prov. For Unrealized profitDecrease in provisionReverse

No entry

14 Goods in Transit(GIT)

Dr Goods in TransitCr Branch a/c

NO entry

15 Cash in Transit(CIT)

Dr Cash in TransitCr Branch a/c

No entry

19Transactions Head office (HO) books

Branch books

16 Profit made by the branch

Dr Branch a/cCr Retained profit

Dr Branch P&LCr HO a/c

17 Profit made by HO

Dr P&LCr Retained profit

No entry

18 Cash remittances from the branch

Dr BankCr Branch a/c

OrDr BankCr remittance from branchDr Remittance from branchCr Branch a/c

Dr HO a/cCr Bank

Or Dr Remittance to HOCr BankDr HO a/cCr Remittances to HO

ACCOUNTING RECORDS FOR HEAD OFFICE OR SYSTEM OF ACCOUNTING FOR BRANCH

(1) . DEBTORS SYSTEM (synthetic method) . (2) . FINAL ACCOUNT SYSTEM . (3) . STOCK AND DEBTORS SYSTEM (analytical

method) . (4) . WHOLESALE BRANCH SYSTEM .

(1) .DEBTORS SYSTEM :

This system is adopted generally in those branches which are fairly small in size . Under this system , head office opens a separate account for each branch in order to record all transactions relating to that branch . This account is a nominal account in nature and is prepared to calculate profit and loss for each branch . Goods supplied by the branch may be either at cost price or at cost plus profit . The main defect in this method is that it does not provide full information for analysis of branch profit and loss .

ILLUSTRATION Invoicing goods to branch at cost . From the following particulars relating to delhi

branch for the year ending 31st march 2012 , prepare necessary accounts in the head office books :

Balances as on 1-4-2011 : Stock at branch = 15000 Debtors at branch = 30000 Petty cash at branch = 300 Goods sent to branch during the year = 252000 Remittance from the branch :

For cash sales = 60000 Received from debtors = 210000 Total = 270000 Goods returned by the branch = 2000 Credit sales during 2011-2012 = 228000 Cheques sent to branch during the year : For salaries = 9000 For rent & taxes = 1500 For petty cash = 1100 Total = 11600 Balances as on 31-3-2012 Stock at branch = 25000 Petty cash = 200 Debtors = 48000

DELHI BRANCH ACCOUNT for the year ended 31-3-2012 :

Particulars Amount Particulars Amount

To branch stock a/c 15000 By cash a/c :To branch debtors a/c 30000 Cash sales

60000To branch petty cash a/c 300 Received from debtors

210000270000

To goods sent to branch 252000

By branch stock a/c 25000

Less : returns to head office 2000

250000 By branch debtors a/c 48000

To bank a/c (expenses) : By branch petty cash 200Salaries 9000Rent & taxes 1500Petty cash 1100

11600

To general p&l a/c 36300

343200 343200

BRANCH STOCK A/C :

BRANCH DEBTORS A/C

PARTICULARS AMOUNT

PARTICULARS AMOUNT

To balance b/d 15000 By Delhi branch a/c (transfer)

15000

To Delhi branch a/c 25000 By branch c/d 25000

PARTICULARS AMOUNT

PARTICULARS AMOUNT

To balance b/d 30000 By Delhi branch a/c (transfer)

30000

To Delhi branch a/c 48000 By balance c/d 48000

INVOICING PRICE METHOD ILLUSTRATION Unique stores ltd. has an old established branch

at Kanpur . Goods are invoiced to branch at 20% profit on invoice price. All expenses are paid by head office except petty expenses.

Stock on 1-1-2011(invoice price) = 15000 Sundry debtors = 9000 Cash in hand = 400 Office furniture = 1200 Goods supplied by head office (invoice price) : Goods returned to head office = 1000

Goods returned by debtors = 480 Debtors at the end = 8220 Cash sales = 50000 Credit sales = 30000 Discount allowed = 300 Expenses paid by head office : Rent = 1200 Salary = 2400 Stationery and printing = 300 Petty expenses paid by branch manager = 280 Stock on 31-12-2011 (invoice price) = 14000 Provide depreciation on furniture @10% .

BRANCH ACCOUNT :PARTICULARS AMOU

NTPARTICULARS AMOUN

TTo branch stock a/c 15000 By cash (remittances) :To branch debtors a/c 9000 Cash sales

50000To branch cash-in-hand 400 Cash from debtors (1)

3000080000

To branch office furniture a/c

1200 By branch stock a/c 14000

To goods sent to branch a/c 80000

By branch debtors a/c 8220

Less : returns to h.o. 1000

79000 By branch furniture a/c(1200-120)

1080

To bank a/c : By stock reseve a/c

Rent 1200

(20/100 x 15000) 3000

Salary 2400

By goods sent to branch a/c

Stationery and printing 300

3900 (20/100 x 79000) 15800

To stock reserve a/c By cash-in-hand (400-280) 120(20/100 x 14000) 2800To general p & l a/c 10920

122220 122220

DEBTORS ACCOUNT :

Working note - 1 : Calculation of cash received from debtors .

PARTICULARS AMOUNT PARTICULARS AMOUNT

To balance b/d 9000 By sales return a/c 480

To sales (credit) a/c 30000 By cash (bal.fig) 30000

By discount a/c 300

By balance c/d 8220

39000 39000

(2). FINAL ACCOUNT SYSTEM :

According to this system , the profit and loss made by the branch is determined by preparing branch trading and profit & loss a/c at cost price . It should be carefully noted that all expenses whether paid by the head office or by the branch are debited to trading and profit & loss a/c prepared for the branch .

Illustration A Delhi merchant has a branch at Chennai to

which he charges the goods at cost plus 25% . The branch keeps its own sales ledger and remits all cash received to the head office everyday .

Stock 1-1-2011 at invoice price = 11000 Debtors = 100 Petty cash = 100 Cash sales = 2650 Goods sent to branch at invoice price = 20000 Collection on ledger accounts = 21000 Goods returned to head office at invoice price

= 300 Bad debts = 300 Allowances to customers = 250 Return inwards = 500 Cheques sent to branch :

BRANCH TRADING & PROFIT & LOSS Account for the year ending 31-12-2011

Rent = 600Salary & other expenses = 900Wages = 200Stock 31-12-2011 at invoice price = 13000Debtors = 2000Petty cash (including) :Misc. income = 25Not remitted = 125

PARTICULARS AMOUNT

PARTICULARS AMOUNT

To opening stock (11000 – 2200)

8800 By sales :

To goods sent to branch a/c Cash 2650

(20000 – 4000 ) 16000

Credit 23950

Less : returns to head office (300-60) 240

15760 Less : returns 500

26100

Wages 200 Closing stock (13000-2600) 10400To bad debts 300 Accrued income 25Allowances 250rent

Rent 600Salaries and other expenses 900Net profit 9715

11765 11765

BRANCH ACCOUNT (PERSONAL) ACCOUNT :

PARTICULARS AMOUNT

PARTICULARS AMOUNT

To opening balances : By remittances :Stock 8800 (2650 + 21000) 23650Debtors 100 Balance c/dPetty cash 100 Stock 10400Goods sent to branch 16000

Debtors 2000


15760 Petty cash 125

Bank (expenses) 1700profit 9715

36175 36175

(3). STOCK AND DEBTORS SYSTEM :

There is yet another method of calculating profit and loss of a branch which is popularly known as (stock & debtors system) or (analytical method) . It is an elaborate method of keeping branch accounts and is considered very useful where the branch turnover is sufficiently large and where a greater degree of control is sought to be exercised by the head office over the branch .

(a) . Goods charged to branch at cost price . ILLUSTRATION

Stock 1-1-2011 = 15000 Stock 31-12-2011 = 14000 Debtors 1-1-2011 = 25000 Debtors 31-12-2011 = 35000 Cash at branch 1-1-2011 = 500 Cash sent to branch = 1500 Goods sent to branch = 50000 Goods returned by branch = 500 Cash sales = 32000 Credit sales = 58000 Allowances to customers = 300 Returns from customers = 600

BRANCH STOCK ACCOUNT :

Bad debts written off = 500 Discount allowed to customers = 2000 Remittance from branch = 70000 Rent & taxes = 1500 Salaries = 5000 General trade charges = 1500 Normal loss of goods due to wastage = 1000 Abnormal loss of goods due to pilferage = 2000

BRANCH DEBTORS ACCOUNT :

PARTICULARS AMOUNT

PARTICULARS AMOUNT

To balance b/d 15000 By cash a/c (sales) 32000To goods sent to branch a/c 50000

By branch debtors a/c(credit sales)

58000


49500 By branch p & l a/c

To branch debtors a/c (pilferage of goods) 2000(sales return) 600 By balance c/d 14000To branch p & l a/c 40900

106000 106000

PARTICULARS AMOUNT

PARTICULARS AMOUNT

To balance b/d 25000 By branch cash a/c (bal.fig) 44600To branch stock a/c 58000 Branch expenses :

Allowances 300

BRANCH CASH ACCOUNT :

Discount 2000Bad debts 500

2800

By branch stock a/c (sales return)

600

By balance c/d 35000

83000 83000

PARTICULARS AMOUNT

PARTICULARS AMOUNT

To balance b/d 500 By branch expenses :

To general cash a/c 1500 Rent & taxes 1500

To branch stock a/c 32000 Salaries 5000

To branch debtors a/c 44600 By general trade charges 1500

8000

By general cash a/c 70000

By balance c/d 600

78600 78600

GOODS SENT TO BRANCH ACCOUNT :

BRANCH EXPENSES ACCOUNT :

PARTICULARS AMOUNT

PARTICULARS AMOUNT

To purchases a/c (transfer) 49500 By branch stock a/c 49500

PARTICULARS AMOUNT

PARTICULARS AMOUNT

To branch cash a/c By branch p & l a/c 10800Rent & taxes 1500Salaries 5000General trade charges 1500

8000

To branch debtors a/c 2800

10800 10800

BRANCH PROFIT & LOSS Account PARTICULARS AMOUN

TPARTICULARS AMOUN

TTo branch expenses : By branch stock a/c Allowances 300 ( Gross profit ) 40900Discount 2000Bad debts 500Rent & taxes 1500Wages & salaries 5000General trade charges 1500To branch stock ( cost of goods pilfered ) 2000Net profit transferred to generalP & l a/c 28100

40900 40900

(b) . Goods charged to branch at selling price : ILLUSTRATION Crown industries has a branch at Madurai to which

goods are invoiced at cost plus 25% . Branch expenses are paid direct from head office and the branch remits all cash to head office .

Goods received from head office at invoice price= 60000

Returns to head office at invoice price = 1200 Branch stock on 1-1-2011 at invoice price = 6000 Cash sales = 20000 Credit sales = 36000 Branch debtors on 1-1-2011 = 7200


Cash collected from debtors = 32000 Discount allowed to debtors = 600 Bad debts in the year = 400 Goods returned by debtors to branch = 800 Rent , rates and taxes at branch = 1800 Branch office expenses = 600 Branch stock at invoice price on 31-12-2011 =

12000PARTICULARS AMOU

NTPARTICULARS AMOU

NT

To balance b/d 6000 By cash a/c 20000

To goods sent to branch a/c 60000


Less : returns to head office 1200

58800 By balance c/d 12000


To branch debtors (sales return)

800

To branch adjustment a/c(loading of surplus) 25/125x2400

480

To branch p & l a/c(cost of surplus) 1920

68000 68000

PARTICULARS AMOUNT

PARTICULARS AMOUNT

To balance b/d 7200 By cash a/c 32000To branch stock a/c (credit sales)

36000 By branch expenses a/c

Discount 600Bad debts 400

1000

By branch stock a/c (sales return)

800

By balance c/d 940043200 43200

BRANCH EXPENSES ACCOUNT :

BRANCH ADJUSTMENT ACCOUNT :

PARTICULARS AMOUNT

PARTICULARS AMOUNT

To cash a/c 2400 By branch p & l a/c 3400To branch debtors 1000

3400 3400

PARTICULARS AMOUNT

PARTICULARS AMOUNT

To stock reserve a/c 2400 By stock reserve a/c 1200To branch p & l a/c (gross profit)

11040 By goods sent to branch a/c

11760

By branch stock a/c 480

13440 13440

BRANCH PROFIT & LOSS ACCOUNT :

(c) . Goods sent to branch at cost plus certain fixed percentage on cost :

Goods supplied by the head office to the branch may be invoiced at cost plus a fixed percentage of profit on cost . Here too , the ‘load’ included in the value of opening stock , closing stock and goods sent to branch minus the returns from branch to

PARTICULARS AMOUNT

PARTICULARS AMOUNT

To branch expenses a/c 3400 By branch adjustments a/c 11040To general p & l a/c 9560 By branch stock a/c 1920

12960 12960

head office is treated in the same way as in the case of branch , where the goods are supplied by the head office at selling price .

ILLUSTRATION M/s brute ltd . invoices goods to their various

branches at cost plus 25% . Branches sell the goods for both cash and credit . Branch expenses are paid by the head office .

Branch stock at i.p. on 1-1-2011 = 8000 Branch debtors = 4000 Branch petty cash = 500 Branch furniture = 6000

Goods invoiced to branch during 2011 = 22000 Cheques sent to branch during 2011 : Salaries = 2000 Rent = 1000 Petty cash = 300 Cash sales by branch = 10000 Cash collected from debtors by branch = 9000 Goods returned by branch = 800 Credit sales by branch = 25000 Goods returned by branch debtors to branch =

400 Discount allowed to debtors = 500


Bad debts = 100 Branch stock at invoice price on 31-12-2011 =

10000 Branch petty cash = 200 Furniture is to be depreciated at 10% .

PARTICULARS AMOUNT

PARTICULARS AMOUNT

To balance b/d 8000 By cash a/c (sales) 10000To goods sent to branch a/c 22000


Less : returns 800

21200 By bal c/d 10000

To branch debtors a/c(sales return)

400

To branch adjustment a/c (apparent profit)

15400

45000 45000


BRANCH ADJUSTMENT ACCOUNT :

PARTICULARS AMOUNT

PARTICULARS AMOUNT

To bal b/d 4000 By cash a/c 9000To branch stock a/c (credit sales)

25000 By branch stock a/c (sales return)

400

By branch expenses a/c Discount 500Bad debts 100

600

By bal c/d 1900029000 29000

PARTICULARS AMOUNT

PARTICULARS AMOUNT

To stock reserve a/c 2000 By stock reserve a/c 1600To branch p & l a/c (gross profit)

19240 By goods sent to branch a/c

4240

By branch stock a/c (apparent stock)

15400

21240 21240

BRANCH PROFIT & LOSS A/C

GOODS SENT TO BRANCH ACCOUNT :

PARTICULARS AMOUNT

PARTICULARS AMOUNT

To salaries a/c 2000 By branch adjustment a/c 19240To rent a/c 1000To expenses a/c (300+500-200)

600

To branch expenses (discount & bad debts )

600

To depreciation a/c 600To general p & l a/c (net profit)

14440

19240 19240PARTICULARS AMOUN

TPARTICULARS AMOUN

TTo branch adjustment a/c 4240 By branch stock a/c 21200To trading a/c 16960

21200 21200

BRANCH EXPENSES ACCOUNT :PARTICULARS AMOUN

TPARTICULARS AMOUN

TTo branch debtors a/c 600 By branch profit & loss a/c 600

(4). WHOLESALE SYSTEM OF ACCOUNTING Sometimes head office also sells goods at

retail or list price besides sending the goods to branches at wholesale prices . The difference between the wholesale and retail price will be the profit made by the branch . Suppose if an article costs to head office 100/- and it is supplied to the branches at 160/- at wholesale price but both head office and branches sell goods at 200/- , then , profit made by the branch will be 40/- (i.e. 200-160) and not 100(200-100) .

ILLUSTRATION A head office sends goods to its branch at 20% less

than the list price . Goods are sold to customers at cost plus 100% .

head office branch

Opening stock at cost 40000 32000

(wholesale price in case of branch)Purchases 200000 -Goods sent to branch 96000 -Sales 170000 80000Sundry expenses 14000

8000

TRADING AND PROFIT & LOSS A/C :PARTICULARS H . O. BRAN

CHPARTICULARS H . O. BRAN

CHTo opening stock 40000 32000 By sales 17000

080000

To purchases 200000

By goods sent to branch

96000

To goods from head office

96000 By closing stock (1) 95000 64000

To gross profit c/d 121000

16000

361000

144000 361000

144000To sundry expenses 14000 8000 By gross profit b/d 12100

016000

To stock reserve against

By stock reserve against

Closing branch stock

Opening branch stock

(60/160x64000) 24000 (32000x60/160) 12000By net profit 95000 8000

133000

16000 133000

16000

Working note :

(1) . Calculation of closing stock h . o . branch Opening stock at cost 40000 32000 (wholesale price in case of branch) Purchases at cost 200000 - Goods from h . o. (wholesale price) - 96000 Less : cost of goods sent to branch 60000 (96000x100/160) Less : cost of sales to outsiders 85000 64000 (wholesale price in case of branch) 95000

64000

BRANCHES KEEPING FULL SYSTEM OF ACCOUNTING :

Branches keeping full system of accounting or independent branches are those branches which also purchase goods from the market besides getting the goods from the head office . They can also supply goods to the head office , pay expenses from the cash realized and deposit cash in their own account . Such branches keep complete set of double entry books and prepare their own trial balance , trading and profit & loss account and balance sheet . Such branches open head office account in their books .

ILLUSTRATION A and co. ltd having its head office at Delhi with

branches at Allahabad and lucknow . Pass the necessary journal entries as per the following transactions which took place during the year .

(a) . Remittances of 4500/- made by lucknow branch to its head office on 30th December , received by head office on 5th January (next year) .

(b) . Goods valuing 2200/- dispatched by Allahabad branch on 27th December , under instructions from the head office and received by the lucknow branch on 30th December .

(c) . Depreciation amounting to 1100 on lucknow branch fixed assets when accounts of such assets are maintained at the head office .

(d) . Goods worth 9000/- dispatched by head office to Allahabad branch on 30th December , received by that branch on 7th January (next year) .

(e) . Lucknow branch paid 400/- dividend to a local shareholder on behalf of the head office .

(f) . A sum of 600/- being arrears of call money was received by the Allahabad branch from a shareholder in November but was not communicated to the head office till 3rd January (next year ) .

In the books of Head Office /JOURNAL ENTRIES

Lucknow branch draws a bill receivable for 5500/- on Allahabad branch which sends its acceptance .

SR.NO.

PARTICULARS L.F.

DEBIT CREDIT

a. Cash in transit a/c dr. to lucknow branch a/c(cash remitted by lucknow branch still in transit)

45004500

b. Lucknow branch a/c dr. to Allahabad branch a/c(being goods transferred from Allahabad branch to lucknow branch under our instructions)

22002200

c. Lucknow branch a/c dr. to lucknow fixed assets a/c(depreciation charged on lucknow branch fixed assets)

11001100

d. Goods in transit a/c to Allahabad branch a/c(goods sent by us still in transit)

90009000

e. Dividend a/c dr. to lucknow branch a/c(dividend paid by lucknow branch on our behalf)

400400

f. Allahabad branch a/c dr. to calls in arrears a/c(calls in arrears received by Allahabad branch on our behalf)

600600

g. (1).

Lucknow branch a/c dr. to bills payable a/c(being bill drawn by lucknow branch on Allahabad branch)

50005000

(2). Bills receivable a/c dr. to Allahabad branch a/c(being bills accepted by Allahabad branch)

50005000

THANK YOU

BRANCH ACCOUNTING

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