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A. WHAT ARE BRANCH ACCOUNTS?

BRANCH ACCOUNTING is a bookkeeping system in which different accounts are maintained for each branch or operating
location.

It is evident that there can be no branch without a head office that is the principal place of business.

Dependent branches are those branches where the business policies and the administration of the branch is wholly
controlled by the head office and its accounts are maintained by head office.

Inland which can be further classified as:

(b) Dependent branches for which all accounting records are kept at head office

Foreign branches

Goods may be invoiced to branches at 1) at cost; (2) at selling price; or (3) in case of retail branches, at wholesale price.

Accounting for Dependent Branches:

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B. INTRODUCTION OF STOCK AND DEBTORS SYSTEM

Under the Debtors System,

the profit or loss can be found out by preparing a Branch Account in the books of Head Office. The Branch Account was
considered as if it were a customer, a personal account with an anonymous identity.

In minor branches, this form of accounting handling works effectively. The Debtors System fails when it is authorised to
perform credit sales as well. In this arrangement, a detail of credit sales remains unaccounted for. The Stock and Debtors
System was created to address this issue.

This strategy is useful when there are a big number of transactions and they are spread out. This strategy aids the
Head Office in maintaining effective branch control, as there are a few more accounts to be opened.

The debtor system of accounting is ideal for small businesses. In the head office ledger, a Branch Account is created for
each branch. This account keeps track of all transactions.

The Branch Account is produced in such a way that it reveals the branch's profit or loss.

Branch Account is a Nominal Account in nature.

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A. Explanation of Stock and Debtors System in brief:

(A) When Goods are Supplied at Cost

1. Branch Stock Account (Real Account):

This account keeps track of all goods transactions and shows the gross profit or loss.

2. Branch Debtors Account (Personal Account):

This account is maintained for transactions related to Branch Debtors.

3. Branch Expense Account (Nominal Account):

This account details all of the Branch's branch expenses and losses.

4. Profit and Loss Account (Nominal Account) for the Branch:

The gross profit from the Branch Stock Account is combined with the expenses from the Branch Expense Account in this
account. Its net result is represented by its balance.

5. The Goods Sent to Branch Account is set up to keep track of the goods sent to and returned from the Branch.

6. The Branch Cash Account shows all of Branch's cash transactions.

(B) When the goods are delivered at the invoice price:

1. Branch Stock Account:

To record the transactions of goods at invoice price. This account will not show profit or loss, but it will show if there is a
shortfall, excess, or closing stock of items.

2. Branch Adjustment Account:

This account is used to calculate the branch's gross profit.

3. Branch Debtors Account,

4. Branch Expense Account,

5. Goods Sent to Branch Account

B. Explanation of Standard steps of Solution of Stock and Debtors System

The following accounts must be prepared in the head office's records on a regular basis:-

1. BRanch stock accounts ( At Invoice Price )

2. Branch Stock Adjustment Accounts

3. Branch Debtors Accounts

4. Branch Profit & Loss Accounts

5. Branch Cash / Bank Accounts

6. Goods sent to Branch Accounts

ACCOUNTING ENTRIES:

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1. For Goods sent to Branch

a. Branch Stock A/C.. Dr.

To Goods sent to branch A/c. (At Invoice Price)

b. Goods sent to Branch A/...Dr.

To Branch Stock Adjustment A/c. (For Loading)

2. For Goods returned by the Branch

Reversal of 1(a) & 1 (b)

3. For Sales made by the branch

a. For cash sales

Branch cash /bank A/c... Dr.

To Branch Stock A/c.

b. For Credit Sales

Branch Debtors A/C......Dr.

To Branch Stock A/c

4. For Sales Returns

Branch Stock A/C...Dr.

To Branch Cash/Bank A/c. ( Cash Sales ret)

To branch Debtors A/c ( Credit Sales ret)

5. For discount allowed and Bad Debts

a. Discount Allowed A/C..Dr.

Bad Debts A/C....Dr.

To Branch Debtors Alc.

b. Branch Profit & Loss A/C...Dr.

To Discount Allowed A/c.

To Bad Debts A/c.

6. Expenses paid by branch

a. Branch Exps. A/C. Dr.

To Branch Cash/ Bank A/c

b. Branch Profit & Loss A/.. Dr.

To Branch Exps. A/c

7. For remittance made by Branch to head Office

Cash/bank A/C.... Dr.

To Branch Cash / Bank A/c.

8. For remittance made by head Office to branch

Branch Cash/ Bank A/C.. Dr

To cash / Bank A/c

9. For Stock Reserve on Closing Stock:

Branch Stock Adjustment A/...Dr.

To stock Reserve A/c.

The above entry shall be reversed, in the beginning of the year

10. For balance in goods sent to Branch Ac.

Goods sent to Branch AlC.. Dr.

To trading A/c

11. For balance in branch Stock Adjustment A/c.

Branch Stock Adjustment A/C..Dr.

To branch Profit & Loss A/c.

(This is gross profit realized)

12. For net profit

Branch Profit & Loss A/C..Dr.

To General profit & Loss A/c.

13. For net Loss

General Profit & Loss A/C...Dr.

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To Branch profit & Loss A/c.

SPECIAL TRANSACTIONS

1. Shortage of Stock / Abnormal Loss

Branch Profit & Loss A/...Dr. (Cost)

Branch Stock Adjustment A/C. Dr.(Loading)

To Branch Stock A/c (Invoice Price)

2. Normal Loss

Branch Stock Adjustment A/c.. Dr. (Invoice Price)

To Branch Stock A/c. (Invoice Price)

Note: all losses be treated as abnormal loss, if nothing is specified

3. Increase in Selling Price above Invoice Price

Branch Stock A/C.. Dr.

To Branch Stock Adjustment A/c

4. decrease in Selling Price below Invoice Price

Branch Stock Adjustment A/C... Dr.

To Branch Stock A/c

Note:

The balance amount in the Branch Stock Account should be viewed as Closing Stock with Branch after recording all of the
foregoing entries.

If we have information about branch closing stock, the difference (if any) should be accounted for as follows (in order of
priority):

Branch Stock Accounts (Invoice Price)

Dr. Cr.

1. Increase in selling price above Invoice Price 1. Shortage of Stock

2. Decrease in Selling Price below Invoice Price

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Following is a case of a company having branches where profit is determined and the branch transactions are recorded in
the books of the head office by the Stock and Debtors Method :-

Quantum Lighting Ltd. has two branches, one in Jaipur and the other in Gujarat. Goods are invoiced to Jaipur at cost plus
25% and to Gujarat at cost plus 50%. Branches remit all the cash received to the Head Office, which is in Mumbai, and all
the other expenses are met by the Head Office itself. Following are all the particulars required to prepare necessary
accounts :

Jaipur Gujarat

₹ ₹

Stock (on 1/4/2021 at invoice price) 93,000 1,56,000

Debtors (on 1/4/2021) 68,000 87,000

Sales at Branches :

Cash Sales 2,50,100 3,50,000

Credit Sales 3,10,000 3,01,000
Cash collection from Debtors 3,04,000 2,98,000

Goods returned by Branch (at invoice price) 15,000 -----

Goods returned by Debtors 12,000 15,000

Goods transferred from Jaipur to Gujarat (at invoice price) 21,000 21,000

Surplus ----- 3,000

-----

Discount allowed to Debtors 2,000 3,500

Expenses at Branches 54,000 67,000

Ledger Accounts – In the Books of Head Office of Quantum Lighting Ltd. :

Cr. Branch Stock A/c Dr.

Particulars Jaipur Gujarat Particulars Jaipur Gujarat

To Balance b/d 93,000 1,56,000 By Br. Cash/Bank A/c 2,50,100 3,50,000

To Goods Sent to Br. A/c 3,40,000 3,60,000 By Br. Debtors A/c 3,14,000 3,01,000

To Br. Stock Adj. A/c 1,70,000 1,80,000 By Goods Sent to Br. A/c 10,000 -----

To Br. Debtors A/c 12,000 15,000 By Br. Stock Adj. A/c 5,000 ------

To Goods Sent to Br. A/c 14,000 ----- By Goods Sent to Br. A/c ------ 14,000

To Br. Stock Adj. A/c 7,000 ----- By Br. Stock Adj. A/c ----- 7,000

To Br. Stock Adj. A/c ----- 3,000 By Shortage 4,500 -----

By Closing Balance c/d 5,60,000 42,000

6,36,000 7,14,000 6.36,000 7,14,000

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Cr. Branch Stock Adjustment A/c Dr.

Particulars Jaipur Gujarat Particulars Jaipur Gujarat

To Br. Stock A/c 5,000 ----- By Stock Reserve A/c 31,000 52,000

To Br. Stock A/c ----- 7,000 By Br. Stock A/c 1,70,000 1,80,000

To Shortage 1,500 ----- By Br. Stock A/c 7,000 -----

To Stock Reserve /c 18,800 14,000 By Br. Stock A/c ----- 3,000

To Br. Profit & Loss A/c 1,82,700 2,14,000

2,08,000 2,35,000 2,08,000 2,35,000

Cr. Branch Debtors A/c Dr.

Particulars Jaipur Gujarat Particulars Jaipur Gujarat

To Balance b/d 68,000 87,000 By Br. Cash/Bank A/c 3,04,000 2,98,000

To Br. Stock A/c 3,10,000 3,01,000 By Br. Stock A/c 12,000 15,000

By Discount Allowed 2,000 3,500

By Closing Balance c/d 60,000 71,500

3,78,000 3,88,000 3,78,000 3,88,000

Cr. Branch Profit & Loss A/c Dr.

Particulars Jaipur Gujarat Particulars Jaipur Gujarat

To Shortage 3,000 ----- By Br. Stock Adj. A/c 1,82,700 2,14,000

To Discount Allowed 2,000 3,500

To Br. Expenses 54,000 67,000

To Net Profit transferred to General Profit & Loss 1,23,700 1,43,500

1,82,700 2,14,000 1,82,700 2,14,000

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The Branch Accounting system necessitates the introduction of a large sum of money in order to manage the operations of
a company's branches, when the company has a large number of branches and accounting for all of them is maintained.
Both the head office and the branches are handled as separate entities in the system, and branch accounting aids in the
evaluation of branch performance as well as comparisons across branches. When a company has multiple branches in
different places, it is obvious that branch accounting is necessary. It aids in the comprehension and tracking of each
branch's performance.

The debtors' approach is suitable for small branches, but it is ineffective when items are delivered to the branch at a later
date.

From the above explanation on the entries and ledgers to be opened, and from the example provided it is concluded
that Stock and Debtors method is an elaborate method It's a popular way of managing branch finances, and it's especially
effective when the branch turnover is high enough and the manager wants to exert more control head office over the
branch.

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