1. BRANCH
ACCOUNTING

2. 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 .

3. 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 branches Transfer 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 subjects Headquarters set up "branch exchange" Branches set up "between the headquarters”
Transfer between headquarters and branch stock in trade Headquarters set up "branches Stock delivered" Branches set up "headquarters shipped inventory." 4

5. 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 .

6. 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 .

7. 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
Headquarters account Between branches
Branch account Headquarters contacts
15 000
15 000 10

11. The treatment of Headquarters transfering goods to the branch
Headquarters account
Transction between branches Delivery of branch inventory
8 000
8 000 11

12. Branch account
transported to the headquarter headquarters contacts
8 000
8 000 12

13. TREATMENT OF TRANSACIONS IN THE BOOKS OF HEAD OFFICE AND BRANCH

14. Head office (HO) books Branch books No entry Transactions
1 Opening Stock
Dr HO Trading
Cr Stock (opening stock)[at cost]
Dr Branch Trading
Cr 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)

15. Head office (HO) books Branch books Transactions
4 Goods sent from HO to Branch [cost+profit]
Dr Branch a/c
Cr Goods sent to Branch
Dr Good received from HO
Cr Ho a/c
5 Goods returned from Branch to HO
Dr Goods sent to branch
Cr Branch a/c
Dr HO a/c
Cr Good received from HO
6 Cash sales/Credit sales
Dr HO Cash/Debtors
Cr HO Sales
Dr Branch cash/ debtors
Cr Branch sales

16. Head office (HO) books Branch books Transactions 7 Closing stock
Dr Stock(Closing)
Cr HO Trading
Dr Stock (Closing)
Cr Branch Trading
good purchased directly from Branch suppliers [at cost] & goods received from HO [cost+profit]
8 Gross profit on trading
Dr HO Trading
Cr HO profit and loss
Dr Branch Trading
Cr Branch profit and loss
9 HO expenses paid by HO
Dr Expenses (P&L)
Cr Cash/Bank
No entry

17. Head office (HO) books Branch books Transactions
10 Branch expenses paid by Head Office
Dr Branch a/c
Cr Cash/Bank
Dr Expenses (P&L)
Cr HO a/c
11 Branch expenses paid by Branch
No entry
12 Administrative charges for services rendered by HO to Branch
Cr HO P&L (Income)
Dr Branch P&L

18. Head office (HO) books Branch books Transactions
13 Provision for Unrealized Profit (Branch & Goods in Transit)[cost+profit]
Increase in provision
Dr HO P&L
Cr Prov. For Unrealized profit
Decrease in provision
Reverse
No entry
14 Goods in Transit(GIT)
Dr Goods in Transit
Cr Branch a/c
NO entry
15 Cash in Transit
(CIT)
Dr Cash in Transit

19. 16 Profit made by the branch Dr Branch a/c Cr Retained profit
Transactions
Head office (HO) books
Branch books
16 Profit made by the branch
Dr Branch a/c
Cr Retained profit
Dr Branch P&L
Cr HO a/c
17 Profit made by HO
Dr P&L
No entry
18 Cash remittances from the branch
Dr Bank
Cr Branch a/c Or
Cr remittance from branch
Dr Remittance from branch
Dr HO a/c
Cr Bank
Dr Remittance to HO
Cr Remittances to HO

20. 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 .

21. (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 .

22. 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 :
Stock at branch = 15000
Debtors at branch = 30000
Petty cash at branch = 300
Goods sent to branch during the year =
Remittance from the branch :

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

24. DELHI BRANCH ACCOUNT for the year ended 31-3-2012 :
Particulars
Amount
To branch stock a/c
15000
By cash a/c :
To branch debtors a/c
30000
Cash sales
To branch petty cash a/c
300
Received from debtors
270000
To goods sent to branch
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
200
Salaries
Rent & taxes
Petty cash
11600
To general p&l a/c
36300
343200

25. BRANCH STOCK A/C : BRANCH DEBTORS A/C PARTICULARS AMOUNT
To balance b/d
15000
By Delhi branch a/c (transfer)
To Delhi branch a/c
25000
By branch c/d
BRANCH DEBTORS A/C
PARTICULARS
AMOUNT
To balance b/d
30000
By Delhi branch a/c (transfer)
To Delhi branch a/c
48000
By balance c/d

26. 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 (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

27. 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 (invoice price) = 14000
Provide depreciation on .

28. BRANCH ACCOUNT : PARTICULARS AMOUNT To branch stock a/c 15000
By cash (remittances) :
To branch debtors a/c
9000
Cash sales
To branch cash-in-hand
400
Cash from debtors (1)
80000
To branch office furniture a/c
1200
By branch stock a/c
14000
To goods sent to branch a/c
By branch debtors a/c
8220
Less : returns to h.o
79000
By branch furniture a/c( )
1080
To bank a/c :
By stock reseve a/c
Rent
(20/100 x 15000)
3000
Salary
By goods sent to branch a/c
Stationery and printing
3900
(20/100 x 79000)
15800
To stock reserve a/c
By cash-in-hand ( )
120
(20/100 x 14000)
2800
To general p & l a/c
10920
122220

29. DEBTORS ACCOUNT : Working note - 1 :
Calculation of cash received from debtors .
DEBTORS ACCOUNT :
PARTICULARS
AMOUNT
To balance b/d
9000
By sales return a/c
480
To sales (credit) a/c
30000
By cash (bal.fig)
By discount a/c
300
By balance c/d
8220
39000

30. (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 .

31. 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 :

32. BRANCH TRADING & PROFIT & LOSS Account for the year ending 31-12-2011
Rent = 600
Salary & other expenses = 900
Wages = 200
Stock at invoice price = 13000
Debtors = 2000
Petty cash (including) :
Misc. income = 25
Not remitted = 125
BRANCH TRADING & PROFIT & LOSS Account for the year ending

33. PARTICULARS
AMOUNT
To opening stock (11000 – 2200)
8800
By sales :
To goods sent to branch a/c
Cash
(20000 – 4000 )
Credit
Less : returns to head office (300-60) 240
15760
Less : returns
26100
Wages
200
Closing stock ( )
10400
To bad debts
300
Accrued income 25
Allowances
250
rent
Rent
600
Salaries and other expenses
900
Net profit
9715
11765

34. BRANCH ACCOUNT (PERSONAL) ACCOUNT :
PARTICULARS
AMOUNT
To opening balances :
By remittances :
Stock
8800
( )
23650
Debtors
100
Balance c/d
Petty cash
10400
Goods sent to branch
2000
Less : returns to h.o
15760
125
Bank (expenses)
1700
profit
9715
36175
Profit
9715
36175

35. (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

36. Stock = 15000
Stock = 14000
Debtors = 25000
Debtors = 35000
Cash at branch = 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

37. 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 STOCK ACCOUNT :

38. BRANCH DEBTORS ACCOUNT :
PARTICULARS
AMOUNT
To balance b/d
15000
By cash a/c (sales)
32000
To goods sent to branch a/c
By branch debtors a/c(credit sales)
58000
Less : returns to h.o
49500
By branch p & l a/c
To branch debtors a/c
(pilferage of goods)
2000
(sales return)
600
By balance c/d
14000
To branch p & l a/c
40900
106000
BRANCH DEBTORS ACCOUNT :
PARTICULARS
AMOUNT
To balance b/d
25000
By branch cash a/c (bal.fig)
44600
To branch stock a/c
58000
Branch expenses :
Allowances

39. BRANCH CASH ACCOUNT : Discount 2000 Bad debts 500 2800
By branch stock a/c (sales return)
600
By balance c/d
35000
83000
BRANCH CASH ACCOUNT :
PARTICULARS
AMOUNT
To balance b/d
500
By branch expenses :
To general cash a/c
1500
Rent & taxes
To branch stock a/c
32000
Salaries
To branch debtors a/c
44600
By general trade charges
8000
By general cash a/c
70000
By balance c/d
600
78600

40. GOODS SENT TO BRANCH ACCOUNT :
PARTICULARS
AMOUNT
To purchases a/c (transfer)
49500
By branch stock a/c
BRANCH EXPENSES ACCOUNT :
PARTICULARS
AMOUNT
To branch cash a/c
By branch p & l a/c
10800
Rent & taxes
Salaries
General trade charges
8000
To branch debtors a/c
2800

41. BRANCH PROFIT & LOSS Account
PARTICULARS
AMOUNT
To branch expenses :
By branch stock a/c
Allowances
300
( Gross profit )
40900
Discount
2000
Bad debts
500
Rent & taxes
1500
Wages & salaries
5000
General trade charges
To branch stock
( cost of goods pilfered )
2000
Net profit transferred to general
P & l a/c
28100
40900

42. (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 at invoice price = 6000
Cash sales = 20000
Credit sales = 36000
Branch debtors on = 7200

43. 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 = 12000
BRANCH STOCK ACCOUNT :
PARTICULARS
AMOUNT
To balance b/d
6000
By cash a/c
20000
To goods sent to branch a/c
By branch debtors a/c
36000
Less : returns to head office
58800
By balance c/d
12000

44. BRANCH DEBTORS ACCOUNT :
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
BRANCH DEBTORS ACCOUNT :
PARTICULARS
AMOUNT
To balance b/d
7200
By cash a/c
32000
To branch stock a/c (credit sales)
36000
By branch expenses a/c
Discount
Bad debts
1000
By branch stock a/c (sales return)
800
By balance c/d
9400
43200

45. BRANCH EXPENSES ACCOUNT :
PARTICULARS
AMOUNT
To cash a/c
2400
By branch p & l a/c
3400
To branch debtors
1000
BRANCH ADJUSTMENT ACCOUNT :
PARTICULARS
AMOUNT
To stock reserve a/c
2400
By stock reserve a/c
1200
To branch p & l a/c (gross profit)
11040
By goods sent to branch a/c
11760
By branch stock a/c
480
13440

46. BRANCH PROFIT & LOSS ACCOUNT :
PARTICULARS
AMOUNT
To branch expenses a/c
3400
By branch adjustments a/c
11040
To general p & l a/c
9560
By branch stock a/c
1920
12960
(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

47. 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 = 8000
Branch debtors = 4000
Branch petty cash = 500
Branch furniture = 6000

48. 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

49. BRANCH STOCK ACCOUNT : Bad debts = 100
Branch stock at invoice price on = 10000
Branch petty cash = 200
Furniture is to be depreciated at 10% .
BRANCH STOCK ACCOUNT :
PARTICULARS
AMOUNT
To balance b/d
8000
By cash a/c (sales)
10000
To goods sent to branch a/c
By branch debtors a/c
25000
Less : returns
21200
By bal c/d
To branch debtors a/c(sales return)
400
To branch adjustment a/c (apparent profit)
15400
45000

50. BRANCH DEBTORS ACCOUNT :
PARTICULARS
AMOUNT
To bal b/d
4000
By cash a/c
9000
To branch stock a/c (credit sales)
25000
By branch stock a/c (sales return)
400
By branch expenses a/c
Discount
Bad debts
600
By bal c/d
19000
29000
BRANCH ADJUSTMENT ACCOUNT :
PARTICULARS
AMOUNT
To stock reserve a/c
2000
By stock reserve a/c
1600
To 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

51. BRANCH PROFIT & LOSS A/C
PARTICULARS
AMOUNT
To salaries a/c
2000
By branch adjustment a/c
19240
To rent a/c
1000
To expenses a/c ( )
600
To branch expenses (discount & bad debts )
To depreciation a/c
To general p & l a/c (net profit)
14440
GOODS SENT TO BRANCH ACCOUNT :
PARTICULARS
AMOUNT
To branch adjustment a/c
4240
By branch stock a/c
21200
To trading a/c
16960

52. BRANCH EXPENSES ACCOUNT :
PARTICULARS
AMOUNT
To branch debtors a/c
600
By branch profit & loss a/c

53. (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 ) and not 100( ) .

54. 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 (wholesale price in case of branch) Purchases Goods sent to branch Sales Sundry expenses

55. TRADING AND PROFIT & LOSS A/C :
PARTICULARS
H . O.
BRANCH
To opening stock
40000
32000
By sales
170000
80000
To purchases
200000
By goods sent to branch
96000
To goods from head office
By closing stock (1)
95000
64000
To gross profit c/d
121000
16000
361000
144000
To sundry expenses
14000
8000
By gross profit b/d
121000
16000
To stock reserve against
By stock reserve against
Closing branch stock
Opening branch stock
(60/160x64000)
24000
(32000x60/160)
12000
By net profit
95000
133000

56. Working note :
(1) . Calculation of closing stock h . o branch
Opening stock at cost
(wholesale price in case of branch)
Purchases at cost
Goods from h . o. (wholesale price)
Less : cost of goods sent to branch
(96000x100/160)
Less : cost of sales to outsiders

57. 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 .

58. 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 .

59. (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 ) .

60. In the books of Head Office /JOURNAL ENTRIES
Lucknow branch draws a bill receivable for 5500/- on Allahabad branch which sends its acceptance .
In the books of Head Office /JOURNAL ENTRIES
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)
4500 b.
Lucknow branch a/c dr.
to Allahabad branch a/c
(being goods transferred from Allahabad branch to lucknow branch under our instructions)
2200 c.
Lucknow branch a/c dr.
to lucknow fixed assets a/c
(depreciation charged on lucknow branch fixed assets)
1100 d.
Goods in transit a/c
(goods sent by us still in transit)
9000

61. e.
Dividend a/c dr.
to lucknow branch a/c
(dividend paid by lucknow branch on our behalf)
400 f.
Allahabad branch a/c dr.
to calls in arrears a/c
(calls in arrears received by Allahabad branch on our behalf)
600
g. (1).
Lucknow branch a/c dr.
to bills payable a/c
(being bill drawn by lucknow branch on Allahabad branch)
5000
(2).
Bills receivable a/c dr.
to Allahabad branch a/c
(being bills accepted by Allahabad branch)

62. THANK YOU