Chapter – 3 Branch Accounting

Chapter – 3 Branch Accounting Chapter outcomes: 1. Meaning and nature of branch accounting; 2. Advant Advantage ages s of branc branch h operati operations ons;; 3. Dierent types of braches; . !ypes ypes of in"and in"and branch branches; es; #. Dierent types of accounting methods; $. Accounting Accounting methods app"icab"e app"icab"e to dependent dependent branches; %. &ro forma 'ourna" 'ourna" entrie entries s under under debtors debtors method; (. &ractica" e)ercises;

Meaning of branch accounting Branch accounting is a specialized accounting methods adopted by an organization which has branches in dierent 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 oce of an organization.

Advantages of branches When 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. ranch operations are considered to be an effective tool to face the co!petition fro! the rival organizations; ". ranch operations facilitate effective !ar#eting networ# for the overall ob$ectives of the organizations

4. The epansion programmes of an organization can be carried out through opening dierent branches! ".Branch operations facilitate more employment opportunities! #. Branch operations increases the turnover of the organization and thereby the pro$t of the organization! %. Branch operations facilitate the organization to achieve economies of large scale operations.

Different types of branches

asically branches can be classified into two broad categories: 1. %nland ranches: The branches which are located within the territory of a country in which the head office is operating are #nown as inland branches 2. &oreign ranches: The branches which are located in any countries other than the ho!e country in which the head office is operating are #nown as foreign branches

Types of inland branches The inland branches can also be classified in to the following two types: 1. 'ependent branches: The branches which do not !aintain a co!plete 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. %ndependent branch: The branches which !aintain a co!plete record of its transactions is said to be independent  branches. These branches are having the freedo! of own  purchases and sales according to the !ar#eting situations.

Methods of maintaining the accounts of dependent branches  The following are the dierent methods of maintaining accounts of dependent branches& '. (ebtors method& This method is usually adopted when the branch is small. )nder this method* the head oce maintains separate branch account for each branch. +uch branch account is nominal nature. ,ts purpose is to ascertain pro$t or loss made by each branch

(ro for!a )ournal entries in the boo#s of head office *under debtors !ethod+ 1. To record the opening balances of branch assets : ranch ccount 'r.

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rach ssets account r.

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*eing the opening balances of assets in the branch+ 2. To record the opening balances of liabilities : ranch liabilities ccount 'r. ---ranch account r.

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*eing the opening balance of liabilities in the branch+ ".When goods are supplied to the branch : ranch ccount 'r.

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/oods sent to branch 0 r. *eing the goods sent to branch+

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. When the goods are returned by the branch: /oods sent to branch account 'r. ---ranch account r.

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*eing the goods returned by the branch+ . When goods are supplied by one branch to another branch under the instruction of the head office : /oods sent to branch account 'r. ---ranch account r.

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*eing the goods supplied to other branch+ 3. When the goods supplied by the head office but not received by the branch : /oods 4in5transit account 'r. ---ranch account r. *eing the goods in transit+

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6. When the head office pays for the expenses of the branch : ranch ccount 'r. ---ash0an# account r.

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*eing the expenses paid for the branch+ 7. When the remittance is received from the branch : ash0an# account 'r. ---ranch ccount r.

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*eing the cash received fro! the branch+ 8. When the remittance is intransit : an#0ash in transit account 'r. ---ranch account r.

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*eing the cash in transit+ 19. Transfer of goods sent to branch: /oods sent to account 'r. ---Trading account r.

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*eing the goods sent to branch account transferred to trading account+

11! To record the closing balance of branch assets :  ranch ssets 'r. ---rach account r.

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*eing the closing balance of branch assets+ 12. To record the closing balance of branch liabilities : rach account 'r.

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ranch liabilities account r.

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*eing the closing balance of branch liabilities+ 1". To record profits or loss : "f #rofit: rach account 'r. ----

/eneral (rofit and oss 0 r. ---"f $oss: /eneral (rofit and oss 0 'r. ----

ranch ccount r.

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