Financial Accounting II

FIAC

Chapter :1

Branch Accounting:
An
Introduction

Branch office
A branch is a business unit located at some distance
from the home office
A trading company may try to expand its business by
opening BRANCHES as another establishment of the
company in different locations

Distinction between branch and

departmental accounts
Basis of distinction

Branch Accounts

Departmental
Accounts

1. Maintenance of
Account

Branch accounts
may be maintained
at the branch or
head office

Departmental
accounts are
maintained at only
one place

2. Allocation of
common expenses

No allocation
problem arises since
the expenses in
respect of each
branch can be
identified

Common expenses
are distributed
among the
departments
concerned on some
equitable basis
considered suitable
in the case

3.Reconcilliation

Reconciliation of
head office and

No such problem
arises

Objectives of branch accounting

Main objective of branch accounts are dependent on
the nature of the business and specific need of a
particular branch.
To know the profit & loss of each branch separately
To know cash & goods requirements of each branch
To evaluate the performance of each branch and calculate
the managers commission
To make strategic decisions depending on the financial
performance.
For audit purposes

classification of branches
Branches

Inland
Branches

Independent
branches (they
maintain
independent
accounting records)

Foreign
Branches

Dependent
branches (for which
accounting records
are maintained in
the head office)

Methods of maintaining accounts of

dependent branches
Dependent
Branches

Goods invoiced
at cost or
selling price

Debtors
Method

Stock &
Debtors
Method

Methods of maintaining accounts of

independent branches
Independent
Branches

Incorporation of
Branch Trial
Balance

Trading P&L A/C

is prepared as a
Memorandum
A/C

Quiz
1.Which of the following statement is not true. Main objectives of branch accounts
are
(a) To the profit & loss of each branch separately
(b) To make strategic decisions depending on financial performance
(c) For audit purposes
(d) To create job opportunities for accountants
2. There are two types of Inland branches, namely .branches &
branches
3. State true or false. The two common methods of maintaining accounts for
dependent branches are Debtors, Stock & Debtors Method.

Answers
1. D
2. Dependent & independent
3. True