BRANCH ACCOUNTING SYSTEMS

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Advance Financial Accounting (FIN-611)

LESSON # 11

BRANCH ACCOUNTING SYSTEMS

Accounting system for Retail Dependent Branch

There are three methods to calculate profits of a retail dependent branch. Any of these

can be used to calculate branch profits; nevertheless, selection of method will depend

upon the nature of operations, size and level of complexity of the transaction.

· Debtor system

· Income statement system

· Stock and debtor system

Debtor System

This system of accounting is suitable for the small sized branches. In this system a

Branch a/c is opened for each of the branches in the main ledger of head office. Each

and every transaction that is made in between the head office and its branches is

entered into the specific branch account. For example there are two branches of a

business one in Gujranwala and the second in Karachi. The head office will open two

ledger accounts in its main ledger one named and titled as Gujranwala Branch a/c and

the other as Karachi Branch a/c. The branch accounts are maintained in such a way

that these will give the amount of profits or losses of the respective branches.

Lets have a glance, how does a Branch a/c look like?

Books of the Head Office

Branch Account

Particulars

Rs.

Particulars

Rs.

Op. Stock

*** Op. Creditors

***

Opening

Op. Debtors

*** Op. Outstanding Expenses

***

Liability

Opening

Op. Petty Cash

*** Cash received from branch

Assets

Op. Furniture

Cash Sales

***

Drawings

Op. Prepaid Expenses

Collection from Debtors

***

Goods sent to Branch

*** Goods Returned by Branch

***

Fresh

Cash sent to branch

Cl. Stock

***

Capital

for branch expenses

*** Cl. Debtors

***

Closing

Assets

for any other purpose

*** Cl. Petty Cash

***

Cl. Creditors

*** Cl. Furniture

***

Closing

Liability

Cl. Outstanding Expenses

*** Cl. Prepaid Expenses

***

Profit & Loss A/c (Profit)

*** Profit and Loss A/c (Loss)

***

In the above Branch a/c we can very well observe few facts which are as under:

1. At the beginning of the year the Branch a/c is debited with the opening

balances of assets lying with the branch and credited with the opening balances

of the branch liabilities. Doing this debit and credit as a result we have opening

capital balance at debit side of the Branch a/c

2. At the ending of the year the Branch a/c is credit with the closing balances of

assets lying with the branch and debited with the closing balances of the branch

liabilities. Doing this debit and credit as a result we have closing capital balance

at credit side of the Branch a/c

Advance Financial Accounting (FIN-611)

3. During the year the head office has sent to branch goods for selling and cash for

whatever purposes. These both are debited to the Branch a/c. This can be

considered as fresh capital (resources) introduced by head office into its branch.

4. During the year the head office has received goods (as returned goods) and

cash (resources) from its branch, the source might be any one e.g. cash sales or

credit customer or even by selling branch assets. This receipts of cash and

return of goods is credited to the Branch a/c. This can be considered as

drawings made by the head office out of the branch.

Now applying the rules studied in the single entry accounting system we can get

the amount of net profit/loss of the branch.

Accounting Entries in the Books of Head Office

1. For opening balances of assets at the branch

Branch a/c

Branch assets a/c (individual accounts)

2. For opening balances of liabilities at the branch

Branch liabilities a/c (individual accounts)

Branch a/c

3. For goods sent to the branch

Branch a/c

Goods sent to branch a/c

4. For return of goods by the branch

Goods sent to branch a/c

Branch a/c

5. For remittance of cash or cheque to the branch

Branch a/c

Cash/Bank a/c

6. For cash or cheque received from the branch

Cash/Bank a/c

Branch a/c

7. For closing balances of assets at the branch

Branch asset a/c (individual accounts)

Branch a/c

8. For closing balances of liabilities at the branch

Branch a/c

Branch liabilities a/c (individual accounts)

9. For closing goods sent to branch account.

Goods sent to branch a/c

Purchases a/c

Advance Financial Accounting (FIN-611)

10. For closing branch account into the profit and loss account

Incase of profit

Branch a/c

Profit & loss a/c

Incase of loss

Profit & loss a/c

Branch a/c

Solved Problem

Problem # 1

From the following information relating to the Sialkot Branch for the year ending 31st

March, 2007, prepare the Branch Account in the books of head office.

Rs.

Opening Stock at Branch

37,500 Cheque sent to Branch

Opening Debtors in Branch

75,000

Salaries

22,500

Opening Petty Cash at Branch

750

Rent & Taxes

3,750

Goods Sent to Branch

630,000

Petty Cash

2,750

Cash Sales

150,000 Closing Stock at Branch

62,500

Cash Received from Debtors 525,000

Closing Debtors at Branch

120,000

Goods Returned by Branch

5,000

Closing Petty Cash at Branch

500

Credit Sales

570,000

Solution:

Books of Head Office

Sialkot Branch Account

Particulars

Rs.

Particulars

Rs.

Opening Stock

37,500

Cash Received from Branch

675,000

Opening Debtors

75,000

Goods returned from Branch

5,000

Opening Petty Cash

750

Closing Stock

62,500

29,000

120,000

Cash sent to Branch

Closing Debtors

Goods sent to Branch A/c

630,000

Closing Petty Cash

500

General Profit & Loss A/c

90,750

(Profit)

863,000

Problem # 2

Excellent Garments of Multan has a branch at Lahore. Goods are supplied to the branch

at cost. The expenses of the branch are paid from Multan and the branch keeps a sales

journal and the debtors' ledger only. From the following information supplied by the

branch, prepare a Branch Account in the books of the head office. (All figures in rupees)

Opening Stock

24,000

Closing Debtors

9,150

Closing Stock

18,000

Opening Debtors

Goods received from HO

33,600

Bad Debt

140

Credit Sales

41,000

Exp. paid by Head office

10,400

Cash Sales

17,500

Cash received from Debtors 37,900

Advance Financial Accounting (FIN-611)

Pilferage of goods by the employees

(Normal Loss)

2,000

Solution:

In the books of Head Office (Multan)

Lahore Branch Account

Particulars

Rs.

Particulars

Rs.

Opening Stock

24,000 Cash Received from Branch

17,500

6,200 Cash Received from Debtors

Opening Debtors

37,900

10,400 Closing Stock

Cash sent to Branch

18,000

33,600 Closing Debtors

Goods sent to Branch a/c

9,160

General Profit & Loss a/c

8360

(Profit)

82,560

Working:

Debtors Account

Particulars

Rs.

Particulars

Rs.

Op. Debtors (Balancing

6,200 Cash Received from Debtors

37,900

41,000 Bad Debts

fig)

140

Sales (credit)

Cl. Debtors c/f

9,160

47,200

Problem # 3

From the following particulars of a dependent branch. Prepare Branch a/c showing

the profit or loss of the branch for the year ended 31-12-2007: (all figures are in Rs.)

Opening stock

30,000

Goods sent to branch

90,000

Cash sent by head office

Cash sales

120,000

for salaries

10,000

for other expenses

4,000

Closing stock could not be ascertained but it is know that the branch usually sells

at cost plus 20% of the cost.

Solution:

Branch Account

Rupees

Opening stock

30,000 Cash received from branch 120,000

Goods sent to branch

90,000

closing stock

20,000

Cash sent to branch

14,000

Profit & loss a/c

6,000

140,000

Advance Financial Accounting (FIN-611)

Working:

Calculation for Closing Stock

Sales at

120%

120,000

Cost of sales at

100%

120,000 x100/120 = 100,000

Opening stock + Goods sent Closing stock = Cost of sales

30,000 + 90,000 X = 100,000

X (closing stock) = 120,000 100,000

X (closing stock) = 20,000

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