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Branch Accounting is an accounting system in which separate accounts are maintained for each
branch of a corporate entity or organization. The primary objectives of branch accounting are
better accountability and control, since profitability and efficiency can be closely tracked at the
branch level.
Branch accounting may involve added expenses for an organization in terms of accounting and
infrastructure. This is because it may be necessary to appoint branch accountants to ensure
accurate financial reporting and compliance with head office procedures and processes.
1. When Cash or Bank money is given by head office to branch for operating branch activities.
This account is credited for all assets received by the branch from the home office. It is also
credited for all debts incurred for merchandise acquired or for services rendered by the home
office for the branch. Such an account would also be credited as a result of expenses incurred by
the home office for the benefit of the branch. It is debited for amounts sent by the branch to the
home office. In operation, the branch account on the home office books will be debited when the
home office account on the branch books is credited, and vice versa. Thus, the balances of such a
pair of accounts should be equal in dollar amount, but the balances should be the opposite sides
of the respective accounts. Two accounts that have such a relationship are often referred to as
Reciprocal.
TYPES OF BRANCHES
Manufacturers may sell goods to the consumers either through the wholesalers and approved
stockists or through their branches. In order to know whether self-retailing through branch is
more profitable than wholesaling, it is necessary to make distinction between profit due to
wholesale and profit due to retail business of the branch.Wholesale price is always less than
retail price.
The head office can also ascertain the profit or loss of a dependent branch by preparing branch
trading and profit and loss a/c at cost. In such cases, the head office may also maintain a branch
account.
Stock and Debtors system is generally used when the goods are sent to the branch at pro-forma
invoice price and the size of the branch is large. Under this system, the branch maintains a few
central accounts to exercise greater control over the branch stock and other related expenses.
These accounts usually are:
This account is on the pattern of a stock account. The account helps the Head Office in
maintaining an effective control over the Branch Stock and tells about shortage and surplus in
the branch stock because of the difference between the pro-forma invoice price and the selling
price. Unlike traditional accounting practice, branch stock a/c is always maintained on the selling
price or pro-forma invoice price. Selling price is used to record the goods sold by the branch to
its customer and goods returned by the branch customers. Rest of the information (even opening
and closing balances) in branch stock a/c is recorded at pro-forma invoice price.
Branch debtors’ a/c is maintained in the traditional manner to record transactions in between
branch and its credit customers.
The purpose of maintaining this account is nothing but the compile all branch expenses at one
place. This will include all types of expenses i.e. cash based expenses and receivables based
expenses.
Branch adjustment a/c replaces the branch income statement (profit & loss a/c). This is the
account in which all expenses and losses are closed along with the margin that is a difference
between cost and the selling price. This difference is split into two; one is termed as “surplus”
that comes from the branch stock a/c representing the difference between selling price and pro-
forma invoice price, the second is termed as “loading” that represents the difference between
pro-forma invoice price and cost. This loading is calculated on opening and closing stock
balances and also on the net of the goods sent branch.
This is a supporting account, which is maintained to show second effects of the goods sent to
branch and the goods returned from branch at pro-forma invoice price. Although the goods sent
to and returned form the branch should be adjusted in the purchases a/c of the head office, but as
we know that the branch stock a/c is not maintained at cost price, therefore, second effect of
goods sent to and returned from branch is not recorded directly into the purchases a/c instead this
second effect is recorded into the goods sent to branch a/c which after adjustment of the loading
is finally closed into the purchases a/c.
This is contra to branch stock account. In this account opening and closing balance of loading on
branch stock is maintained.