Chapter – 3Branch Accounting

Chapter outcomes:1.Meaning and nature of branch accounting; 2.Advantages of branch operations;3.Different types of braches;4.Types of inland branches;5.Different types of accounting methods;6.Accounting methods applicable to dependent branches;7.Pro forma journal entries under debtors method;8.Practical exercises;

Meaning of branch accounting

Branch accounting is a specialized accounting methods adopted by an organization which has branches in different location. A branch is a subordinate division of an organization. A branch is any establishment carrying on either the same or substantially the same activity as that carried on by the head office of an organization.

Advantages of branchesWhen an organization operates branches in different location, the following advantages are achieved by the head office:1.The head office is able to extend its operations in different locations in order to exploit the business opportunities available in the places;2.Branch operations are considered to be an effective tool to face the competition from the rival organizations;3.Branch operations facilitate effective marketing network for the overall objectives of the organizations

4. The expansion programmes of an organization can be carried out through opening different branches;5.Branch operations facilitate more employment opportunities;6. Branch operations increases the turnover of the organization and thereby the profit of the organization;7. Branch operations facilitate the organization to achieve economies of large scale operations.

Different types of branches

Basically branches can be classified into two broad categories:

1.Inland Branches: The branches which are located within the territory of a country in which the head office is operating are known as inland branches

2.Foreign Branches: The branches which are located in any countries other than the home country in which the head office is operating are known as foreign branches

Types of inland branches

The inland branches can also be classified in to the following two types:1.Dependent branches: The branches which do not maintain a complete record of its transactions is said to be dependent branches. These branches depend on the head office for the entire operations wherein all goods are supplied by the head office and expenses are paid by the head office.2.Independent branch: The branches which maintain a complete record of its transactions is said to be independent branches. These branches are having the freedom of own purchases and sales according to the marketing situations.

Methods of maintaining the accounts of dependent branches

The following are the different methods of maintaining accounts of dependent branches:1.Debtors method: This method is usually adopted when the branch is small. Under this method, the head office maintains separate branch account for each branch. Such branch account is nominal nature. Its purpose is to ascertain profit or loss made by each branch

Pro forma Journal entries in the books of head office (under debtors method)

1. To record the opening balances of branch assets:Branch Account Dr. XXXXBrach Assets account Cr. XXXX(Being the opening balances of assets in the branch)

2. To record the opening balances of liabilities:Branch liabilities Account Dr. XXXXBranch account Cr. XXXX(Being the opening balance of liabilities in the branch)

3.When goods are supplied to the branch:Branch Account Dr. XXXXGoods sent to branch A/C Cr. XXXX(Being the goods sent to branch)

4. When the goods are returned by the branch:Goods sent to branch account Dr. XXXXBranch account Cr. XXXX(Being the goods returned by the branch)

5. When goods are supplied by one branch to another branch under the instruction of the head office:Goods sent to branch account Dr. XXXXBranch account Cr. XXXX(Being the goods supplied to other branch)

6. When the goods supplied by the head office but not received by the branch :Goods –in-transit account Dr. XXXXBranch account Cr. XXXX(Being the goods in transit)

7. When the head office pays for the expenses of the branch:

Branch Account Dr. XXXXCash/Bank account Cr. XXXX(Being the expenses paid for the branch)

8. When the remittance is received from the branch:Cash/Bank account Dr. XXXXBranch Account Cr. XXXX(Being the cash received from the branch)

9. When the remittance is in-transit:Bank/Cash in transit account Dr. XXXXBranch account Cr. XXXX(Being the cash in transit)10. Transfer of goods sent to branch:Goods sent to account Dr. XXXXTrading account Cr. XXXX(Being the goods sent to branch account transferred to trading account)

11. To record the closing balance of branch assets: Branch Assets Dr. XXXXBrach account Cr. XXXX(Being the closing balance of branch assets)12. To record the closing balance of branch liabilities:Brach account Dr. XXXXBranch liabilities account Cr. XXXX(Being the closing balance of branch liabilities)13. To record profits or loss :If Profit: Brach account Dr. XXXX General Profit and Loss A/C Cr. XXXX

If Loss: General Profit and Loss A/C Dr. XXXX Branch Account Cr. XXXX