Branch Account

The ultimate objective of any business organisation is to maximize their profit, which is not
possible without increasing the sales therefore to achieve the higher rate of sales by out beating
the competition, also eliminating the middleman and to satisfy the customer usually business
concerns will open branches either in the same Town or State, or in the same country or in
abroad.
Branches may do retail business or wholesale activities or may manufacture their products or provide some services
to the customers at different places such activities are controlled and co ordinated by the parent body called Head
Office.

MEANING:

Branch:
A Branch may be defined as “a section of an enterprise, geographically separated from the rest of the business,
controlled by a Head Office and generally carrying on the same activities as the parent enterprise.” for example Life
Insurance Corporation, All Nationalised Banks like Canara Bank, Reliance Show rooms, Tata’s manufacturing units,
Bata shoe show rooms, etc.,

Head Office:
Refers to a concern which is having an ultimate power to exercise control over different branches either in the same
state or in same country or in abroad.

Branch Accounting:
It refers to recording the transactions of the branches, whether relating to deal with Head Office Or with Outsiders Or
with between Different branches in the books of Head Office. Such account are maintained in order to know the
Profit or Loss of each branch.

OBJECTIVES OF BRANCH ACCOUNTING:

1. To know the Profit made or Loss suffered by each branch.
2. To know the Actual Financial Position of each branch.
3. To compare the performance of one branch with another.
4. To give valuable suggestions and to take timely decisions with respect to each branch.
5. To meet the statutory requirement as per Companies Act of 1956.
6. To ascertain the requirement of each branch in terms of Goods and Cash.
7. To calculate the actual commission payable to manager based on profit.
8. To avoid error in recording transactions of each branch.
9. To assess the performance and progress of each branch.
10. To Control and Co - Ordinate the activities of each branch.

TYPES OF BRANCHES:
Types of the branch depends upon the Size of the branch, Nature of goods handled, Location in which it operates and
degree of Control exercised by the Head Office. Thus branches are broadly classified into two categories for the
purpose of recording transactions in the books accounts.
 A. Inland Branches: are those branches located within a geographical boundary of one
country and also its head office located in the same country.
B. Foreign Branches: is an independent branch located on a foreign country which enjoys
complete autonomy and function like an independent branch. It has all the features of
independent branch except the books of accounts which are maintained in Foreign
Currency.

DEPENDENT BRANCHES:
Are those branches which are not keeping their own separate set of books of accounts and those branches will fully
rely on head office for supply of goods and cash for expenses, and head office will maintain all the books of accounts
in relation such branches.

The relation between the Branch and Head Office is similar to a agency, hence these are also known as Agency
Branches.

FEATURES OF DEPENDENT BRANCHES:

1. Dependency: these are the branches which usually depends Head Office for supply of
goods and not allowed to purchase from outside.
2. Price of the Goods: supplied by the Head Office may be at Cost Price or at Invoice price
which includes some profits.
3. Expenses: all regular expenses of the branch are directly paid by the Head Office through
cheque.
4. Sales: normally branch will sell the goods for cash only but in some cases with the
authorization from Head Office branch also sells goods for credit.
5. Remittance of Cash: cash received by the branch through cash sales and from debtors are
to be remitted to Head Office or Deposited into bank account in the name of Head Office
daily.
6. Books maintained: such branches will maintain Cash book, Petty Cash book, Debtors
accounts and Stock registers, on memorandum basis.
7. Accounting function: usually branches do not perform accounting function but sends
information to Head Office for accounting purpose.
8. Petty cash: even though all expenses reimbursed and paid by Head Office branch is
allowed to maintain petty cash balance.
9. Petty expenses: from the petty balances maintained by the branch usually branch
manager will pay for the petty expenses.

Independent Branches:
Independent branches are those branches which are free from the restrictions of Head Office,
they keep their own set of books of accounts, purchase goods from the open market, even
manufactures and supplies goods to the Head Office, prepare their own Trail Balance and Final
Accounts at the end of the Trading period and sends such copies to Head Office.

Features of Independent Branches:

1. Independency: these branches will not depend the Head Office for supplies of goods they
purchase from open market and also can be receive from Head Office.
2. Selling price: without any restrictions branches are allowed to sell the goods at a price
they desire.
3. Set of Books: branches will maintain a complete set of books of accounts for all transactions.
4. Remittance of cash: cash received by the branch from cash sales & from debtors need not
be remitted to Head Office and they can retain with the branch.
5. Final Accounts: such branches will prepare their own Trail Balance, and Trading and
Profit and Loss account as well as Balance Sheet for the Trading period.
6. Incorporation: an independent branch will sends accounts and statements to the Head
Office for its incorporation and to prepare branch account in HO books.
7. Reconciliation: if there is any differences between the balances maintained by the Head
Office for Branch and for Branch to the Head Office such differences must be incorporated.

SYSTEM OF ACCOUNTING:
To record the transactions of Dependent Branch, Head Office may adopt any one of the following systems of
accounting:

1. Debtors System
2. Stock and Debtors System
3. Final Account System
4. Wholesale Branch System

1. Debtors System: This system of accounting is maintained in case the size of the branch is
small and transactions are very less. Under this system Head Office will maintain only one
account called “Branch Account” which is a nominal account, and Branch account is debited
with all the goods sent, cash/cheque sent for expenses along with the opening balances of
branch assets and Branch account credited with the goods returned, cash remittances along
with the closing values of assets. The differences of this accounts is treated as Branch profit
or loss.

2. Stock and Debtors System: Under this system Head Office does not Prepare Branch
account to know the profit or loss of the branch instead of that Head Office will prepare
following accounts to ascertain profit or loss
 Branch Asset Account
 Branch Stock Account
 Branch Expenses Account
 Branch Adjustment (Profit and Loss) Account
 Goods Sent to Branch Account.

3. Final Account System: Under this system Head Office will prepare Branch Trading and
Profit and Loss Account to ascertain net profit or loss of a branch, here this account is
similar to Trading account but not prepared as a part of double entry system.

4. Wholesale Branch System: Under this system profit or loss of the branch is ascertained
based on the invoice price of the goods which is invoiced to wholesaler or retailer by the
 branch and Head Office will make necessary adjustments with regard to the stock reserve
in respect of Unsold Stock.

ACCOUNTING PROCEDURE FOR DEPENDENT BRANCHES:

Debtors System: This system of accounting is maintained in case the size of the branch is small and transactions are
very less. Under this system Head Office will maintain only one account called “Branch Account” which is a nominal
account, and Branch account is debited with all the goods sent, cash/cheque sent for expenses along with the
opening balances of branch assets and Branch account credited with the goods returned, cash remittances along with
the closing values of assets. The differences of this accounts is treated as Branch profit or loss.

A. If the Goods are Sent by the Head Office to its Branch at Cost Price.
Following is the Proforma of Branch Account which appears in the Books of Head Office.

IF THE GOODS ARE SENT BY THE HEAD OFFICE TO ITS BRANCH AT INVOICE OR
INFLATED OR SELLING PRICE:
Sometimes H.O. may supply goods to the Branch at a price higher than its cost price such a price is called Inflated or
Invoice or Selling price. The differences between the cost price and invoice price is termed as load or loading.
Purpose of sending goods at invoice price
 To hide the profit percentage in goods sent.
 To keep the branch manager in dark about the cost of goods.
 To prevent the rivals to set up competing fi rm.
 To enable the H.O. to have an effective over the branch stock.
 To prevent carelessness and fraud in handling stock.

Under this method Profit Or Loss of a Branch can be ascertained by preparing any of the following accounts:

1. Branch Account with Cost Price

2. Branch Account and Branch Adjustment Account
3. Double Column Branch Account for Cost and for Load
4. Branch Account with Adjustment
Following is the Proforma of Branch Account which appears in the Books of Head Offi ce if goods are sent at
invoice price.
Journal entries (for branch) prepared in the books of Head Office:
1. when good sent to branch:
Brach a/c  Dr
    To Goods sent to branch a/c
2. when goods return by branch:
Goods sent to branch a/c   Dr.
     To Branch a/c
3. when payment made to branch
Branch a/c dr
    To bank / cash a/c
4. when branch remitted cash to HO
Bank a/c
   To branch a/c
6. profit & loss:
Profit:
Branch a/c
    To profit a/c

Loss:
Profit & loss a/c 
   To branch a/c

Format:
Q.1.

Debtor a/c

particulars amount particulars amount

To balance 10,000 By cash receive  (65,000 + 5,000)
d/b 70,000
To credit sales 80,000 By good return 1000
By discount allow 500
By balance c/d (b/f) 18500
90,000 90,000
Branch

particulars amount particulars amount

To Opening stock  25,000 By opening salary 4,000
outstanding
 To opening debtors 10,000 By goods return 2000
To Opening furniture 6,000 By bank a/c (remittance to
HO)
Cash sales     2,70,000
Cash received from
debtors    70,000
  Insurance 2,000 3,42,000
To opening petty cash 1,000
To prepaid  insurance 300 By closing debtors 18,500
To goods sent to branch    2,00,000 2,00,00 By closing petty cash 800
0
To Bank a/c: (expenses) By closing stock 15,000
Rent 9600
Salary 48,000
Petty cash 2,000
Insurance 1200 60,800
By closing furniture 5,400
(6000 – 600 )
To closing outstanding salaries 4,000 By insurance prepaid 300

To commission 5% on profit 3,852

5/105 x 80,900 (386,000- all the above
amount mention in Dr side)
To Gen P&L a/c  (80,900- 3852) 77,048
3,86,00 3,86,000
0
105% = 80900
5% = ?
80900x5/105 = 3,852

Profit is 77,048 of 5/100 commisiion = 3852

Petty 
particulars amount particulars amount
To balance 1,000 By petty expenses 2200
b/d
To bank 2,000 By balance c/d (b/f) 800
3,000 3,000
Calculation of insurance \
Prepaid amount = 300
Expenses = 1200
Total amount = 1500
Insurance amount per month = 1500/ 15 month (12 month (1 april 2014 – 31 march 2015) +3
st st

month (1 april 2015 – 30 June 2015)

st th

= Rs. 100 /month

Additional prepaid amount = 3 month x 100 = 300 
Q2.

Cost 25% = ¼  convert that into sales = 20% = 1/5

Debtors a/c

particulars amount particulars amount

To balance b/d 60,000 By cash received from debtor (b/f) 4,60,000
To credit sales (80% of 4,48,000
5,60,000)
By balance c/d 48,000
5,08,000 5,08,000

  Branch a/c
particulars amount particulars amount
To O/s 25,000 By bank a/c (remittance)
By cash sales   1,12,000
Received from debtors   5,72,000
4,60,000
To opening debtors 60,000 By closing  36,000
To opening petty cash 120 By debtors 48,000
To Goods sent to branch 4,59,000 By Petty cash  180

To bank ( remittance to be received from

HO)
Salaries   36,000
Rent    12,000
Petty expenses  5660
To gen P&L  58400 By Gen P&L 
Calculation of Good sent to branch:
Total sales  =                                          5,60,000
Less: profit (1/5 of 5,60,000) =               1,12,000
Balancing amount = 4,48,000
Add: closing 36,000
Balance = 4,84,000
Less: opening stock 25,000
Amount og goods sent to branch    4,59,00

Petty cash

particulars amount particulars amount

By balance b/d 120 By petty expenses  5600
By balance c/d 180
To bank (remittance to be received from HO) 5660
5780 5780

Q3.

Q.4
 Mysore Branch A/c in the books of head office

particulars amount particulars amount

To O/s 32,600 By Bank a/c:
Cash sales    71,900
Cash receive from debtors ----- 71,900
To opening petty cash 110 By Goods sent to branch ( goods 3,900
return)
To goods sent to 45,600 By closing stock 37,100
branch
To bank: By closing petty cash 90
Salaries     12,800
Rent          3,000
Petty cash  2,600 18,400
To gen P&L a/c (profit) 16,280 --
1,12,990 1,12,990

Q5.
 Branch A/c
particulars amount particulars amount
To o/s  15,000 By Bank: 80,000
Cash sales      50,000
Cash receive from debtors       
30,000
To opening debtors 9,000 By goods sent to HO (Goods return) 6000
To opening petty cash 400 By closing stock 16,000
To opening furniture 2,400 By closing debtors (working notes) 7920
To goods sent ot 85,000 By closing furniture  2160
branch (2400 – 240= 2160)
To Bank: By closing petty cash 120
Rent     1200 (400- 280 = 120)
Salary    2,400
Printing    300 3,900
By gen P&L a/c  3,500
1,15,700 1,15,700

debtor a/c

particulars amount particulars amount

To balance 9,000 By cash received 30,000
b/d
To credit sales 30,000 By goods return 480
By discount allowed 600
By closing stock / by balance c/d (b/f) 7920
39000

o/s balance 9000

Add: credit sales: 30,000
Total value of debtors 39,000
Less: 
Cash received  30,000
Goods return 480
Discount allowed 600

Final balance of 7920

Q6.

Q7. 
A shoe co. of kanpur has its Branch at delhi. Goods are invoice to the Branch at cost plus 25%.
Branch has been instructed to deposit daily all cash received by it in the HO. From the following
particulars, prepare Delhi Branch Account in the books of the HO at kanpur.
The Branch sell the goods at the invoice price only.

Stock on 1/4/2014 @ invoice price 30,000 Discount allowed to debtors 600

Sundry debtor on 1/4/2014 18,000 Goods return by debtors 960
Cash in hand on 1/4/2014 800 Expenses paid by HO:
Office furniture on 1/4/2014 2,400 rent 2400
 Goods invoice from HO (invoice 1,60,000 salary 4800
price)
Goods return to HO (invoice price) 2,000 Printing & stationary 600
Cash received from debtor 60,000 Petty expenses paid by Branch 560
Manager
Cash sales 1,00,000 Depreciation on furniture 10%
Credit sales 60,000

Debtors:

particulars amount particulars amount

To balance 18,000 By cash received 60,000
b/d
To credit sale 60,000 By dis allowed 600
By good return 960
By balance c/d (b/f) 16,440
78,000 78,000

Branch a/c
particulars amount particulars amount

To opening stock  30,000 By Bank a/c (remittance)

Cash sales   1,00,000
Cash received from debtors  60,000
1,60,000
To opening debtors 18,000
To opening petty cash 800 By stock reserve (opening stock)
( 30,000 x 1/5) 6,000
To opening furniture 2,400
To goods sent to Branch   1,60,000 By goods sent to Branch (removing
Less: return                             2,000 1,58,00 loading charges) (1,58,000 x 1/5)
0 31,600
To bank a/c (expenses): By closing stock 28,960
Rent  2,400
Salary 4,800
Printing  600 7,800
By closing debtors 16,440
By closing furniture 2,160
To stock reserve (closing stock) 5792 (2,400 – 240)
(28,960 x 1/5)
By closing petty cash
(800 – 560) 240

To gen P&L 22,608 By Gen P&L

Invoice price = CP + loading
charges

Calcualtion of closing:
Opening stock :    =30,000
Add: goods sent to branch ( 1,60,000- 2,000) = 1,58,000
1,88,000
Less: cash sales =1,00,000
= 88,000
Less: credit sales ( 60,000- 960) = 59,040
Closing stock = 28,960

Q.8 

particulars amount particulars amount

To Opening stck: 4,00,000

Transfer from HO (invoice P)
2,40,000
Purchase      1,60,000
Good sent to branch  (invoice) 6,00,000

By goods sent to branch (loading 1,00,000

charges) 6,00,000 x 1/6
30,000
By stock reserve (removing loading
charges from C/s) (1,80,000 x 1/6)
By stock reserve ( removing loading 40,000
charges from opening stock)
 (2,40,000 x 1/6)
To Bank a/c :

rent,

salaries

(direct purchases) 4,50,000

By closing stock: 5,00,000

HO  1,80,000 (IP)
Purchase 1,20,000
To gen p&l 3,23,500

Q.9

Q.10
Debtors a/c
particulars amount particulars amount
To balance b/d 9,000 By bank a/c 30,000
To credit sales By goods return 480
(80,000- 50,000) 30,000
By discount allowed 300
By balance c/d 8220

Branch a/c
particulars amount particulars amount
To opening stock 15,000 By bank a/c (remittance to HO)
Cash sale = 50,000
Received from debtors 30,000 80,000

Less:
additional petty expenses   (90)

To debtors 9,000 By goods sent to Branch (loading 15,800

charges) ( 79,000 x 1/5)
To opening petty cash 400 By stock reserve (opening stock 3,000
loading charges) ( 15,000 x 1/5)
To opening furniture 1,200
By closing debtors 8220
To goods sent to branch    80,000 By closing stock 14,000
Less: return   1,000 79,000

To bank a/c ( expenses) By closing petty  120

(400 – 280 ) 
Rent    1,200 By closing furniture  1,080
Salary   2,400 (1,200 – 120) 
Stationary    300 3,900

To stock reserve (closing stock)

( 14,000 x 1/5)  2,800
 To gen P&l a/c  10,920
For example; Calculation of closing petty Suppose,
cash: If 20% profit on cost price is given = 20/100 = 1/5
Opeing petty cash                      500 n cost which will be 1/6 on slaes
Cash expenses in the year         590
  Total                                               (90) But in this question 20% profit on sales 
20/100 = 1/5 on slaes 

Q. 11

Debors A/c:

Particulars amount particulars amount

To balance b/d 8,500 By cash received  28500
To credit sales (88,000 – 56,000) 32000 By discount 250
allowed 
By B/R 2,000
By Balance c/d 9750
40,500 40,500

Branch A/c:
Particulars amount particulars amount
To opening stock 15,000 By outstanding salary  ----------
To opening petty cash 300 By Bank:
Cash sales      56,000
Debtor    28,500
Furniture    900
Total amount = 85,400
Less: petty cash (60) 85,340
To opening debtors 8,500
To opening furniture 2,000 By good sent to branch
(loading charges) (79,000 x 15,800
1/5)
By stock reserve (opening 3,000
stock) ( 15,000 x 1/5)
To goods sent to branch    80,000 By closing stock 12,000
Less: return  1000
79,000
By closing debtors 9750
To bank (expenses) By closing BR 2,000
Rent    2,400
Salary   4,200
Furniture  1,600 8,200
By closing furniture 2,420
To closing liabilities (outstanding salary)
400
To stock reserve (closing stock) (12,000
x 1/5) 2,400
To General P&L a/c  14,510
Calculation of closing
furniture:
Opening furniture 2,000
Less: book value of
furniture sold 
(95% = 950
100% = ?
950 x 100/95 1,000
---------------
Book value of unsolf --
furniture  1000
Add: additional purchase
1,600
 
Depreciation for furniture: 2,600
Old furniture (1000 x 10%)
New furniture (1,600 x 10%
x 6/12)
100

Total depreciation value 80

 
Final closing stock of
furniture (2,600 – 180) 180
 2,420
(closing
value) 
Opening petty cash 300
Less: expenses  360
Balance ( 60)
Suppose,
If 20% profit on cost price is given in question then =
20/100 = 1/5  conversion to profit on sales will be  will
be 1/6 on slaes

But in this question 20% profit on sales 

20/100 = 1/5 on slaes