BRANCH ACCOUNTING - STOCK AND DEBTOR SYSTEM

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STOCK AND DEBTORS SYSTEM >>

Advance Financial Accounting (FIN-611)

LESSON #13

BRANCH ACCOUNTING - STOCK AND DEBTOR SYSTEM

Stock and Debtors system is generally used when the goods are sent to the branch at

pro-forma invoice price and the size of the branch is large. Under this system, the

branch maintains a few central accounts to exercise greater control over the branch

stock and other related expenses. These accounts usually are:

Branch Stock Account

Branch Debtors Account

Branch Expenses Account

Branch Adjustment Account

Goods Sent to Branch Account

Branch Stock Reserve Account

Branch Stock Account

This account is on the pattern of a stock account. The account helps the Head Office in

maintaining an effective control over the Branch Stock and tells about shortage and

surplus in the branch stock because of the difference between the pro-forma invoice

price and the selling price.

Unlike traditional accounting practice, branch stock a/c is always maintained on the

selling price or pro-forma invoice price. Selling price is used to record the goods sold

by the branch to its customer and goods returned by the branch customers. Rest of the

information (even opening and closing balances) in branch stock a/c is recorded at

pro-forma invoice price.

Branch Debtors Account

Branch debtors' a/c is maintained in the traditional manner to record transactions in

between branch and its credit customers.

Branch Expense Account

The purpose of maintaining this account is nothing but the compile all branch

expenses at one place. This will include all types of expenses i.e. cash based expenses

and receivables based expenses.

Branch Adjustment Account

Branch adjustment a/c replaces the branch income statement (profit & loss a/c). This

is the account in which all expenses and losses are closed along with the margin that is

a difference between cost and the selling price. This difference is split into two; one is

termed as "surplus" that comes from the branch stock a/c representing the difference

between selling price and pro-forma invoice price, the second is termed as "loading"

that represents the difference between pro-forma invoice price and cost. This loading

is calculated on opening and closing stock balances and also on the net of the goods

sent branch.

Advance Financial Accounting (FIN-611)

Goods Sent to Branch Account

This is a supporting account, which is maintained to show second effects of the goods

sent to branch and the goods returned from branch at pro-forma invoice price.

Although the goods sent to and returned form the branch should be adjusted in the

purchases a/c of the head office, but as we know that the branch stock a/c is not

maintained at cost price, therefore, second effect of goods sent to and returned from

branch is not recorded directly into the purchases a/c instead this second effect is

recorded into the goods sent to branch a/c which after adjustment of the loading is

finally closed into the purchases a/c.

Branch Stock Reserve Account

This is contra to branch stock account. In this account opening and closing balance of

loading on branch stock is maintained.

ACCOUNTING ENTRIES IN THE BOOKS OF

HEAD OFFICE

Sr no.

JOURNAL ENTRIES

Debit

Credit

For Goods Sent to Branch (at Invoice)

Branch Stock Account (Dr)

xxx

(1)

Goods Sent To Branch Account (Cr)

xxx

For Goods Sold At Branch On Credit

Branch Debtors Account (Dr)

(At

xxx

(2)

Selling Price)

xxx

Branch Stock Account (Cr)

For Goods Sold At Branch For Cash

Branch Cash Account (Dr)

(At xxx

(3)

Selling Price)

xxx

Branch Stock Account (Cr)

For Cash Received From Branch Debtors

Branch Cash Account (Dr)

xxx

(4)

Branch Debtors Account (Cr)

xxx

For Goods Returned by Branch

Branch Stock Account (Dr)

xxx

(5)

Branch Debtors Account (Cr)

xxx

For Goods Returned by Branch To Head Office

Goods Sent To Branch Account (Dr)

xxx

(6)

(At Invoice)

xxx

Branch Stock Account (Cr)

For Cash Sent By Head Office to Branch For

Expenses

xxx

(7)

Branch Expenses Account (Dr)

xxx

Cash Account (Cr)

For Bad Debts/ discount Allowed To Branch

Debtors

xxx

(8)

Branch Debtors Account (Dr)

xxx

Branch Debtors Account (Cr)

For Shortage/ Shrinkage in Branch Stock

(9)

Branch Adjustment Account (Dr)

xxx

Advance Financial Accounting (FIN-611)

Branch Stock Account

xxx

(Cr)

For Surplus In Branch Stock

Branch Stock Account (Dr)

xxx

(10)

Branch Adjustment Account (Cr)

xxx

For Closing Branch Expenses Account Into Branch

Adjustment Account

xxx

(11)

Branch Adjustment Account (Dr)

xxx

Branch Expenses Account (Cr)

For Transfer of Opening Stock Reserve (Loading)

Into The Branch Adjustment Account

Branch Stock Reserve Account (Dr) (with loading

xxx

(12)

of opening

Branch Adjustment Account (Cr)

xxx

For Creating Stock Reserve on Closing Balance of

Stock (Loading on Closing Stock)

(13)

Branch Adjustment Account (Dr)

xxx

Branch Stock Reserve (Cr)

xxx

For Loading on Net Amount of Goods Sent to

Branch

xxx

(14)

Goods Sent to Branch Account (Dr)

xxx

Branch Adjustment Account (Cr)

For Closing Goods Sent To Branch Account Into

Purchase Account

(15)

Goods Sent To Branch Account (Dr)

xxx

Purchases Account (Cr)

xxx

For Closing the Branch Adjustment Account Into

Profit & Loss Account

Branch Adjustment Account (Dr) (with the

(16)

xxx

amount of profit on branch)

Profit & Loss Account (Cr)

xxx

LEDGER ACCOUNTS

IN THE MAIN LEDGER OF HEAD OFFICE

BRANCH STOCK ACCOUNT

Particulars

Debit

Particulars

Credit

Balance Brought Forward (At ******

Branch Debtors (Credit Sales)

Jef (2)

Invoice)

(Selling Price)

Goods Sent to Branch (At Jef (1)

Branch Cash (Cash Sales)(Selling

Jef(3)

Invoice)

Price)

Branch Debtors (Sales Return)

Jef (5)

Goods Sent to Branch (Return)

Jef(6)

Branch Adjustment (Surplus)

Jef (10) Branch Adjustment (Shortage)

Jef(9)

Balance Carried Forward (At

******

Invoice)

Advance Financial Accounting (FIN-611)

GOODS SENT TO BRANCH ACCOUNT

Particulars

Debit

Particulars

Credit

Branch Stock (Credit Sales)

Jef(6)

Branch Stock (Goods Sent) (At Jef(1)

Invoice)

Branch Adjustment (Loading)

Jef(14)

Purchases (Balancing Figure)

Jef(15)

BRANCH EXPENESE ACCOUNT

Particulars

Debit

Particulars

Credit

Cash (Expense)

Jef(7)

Branch Adjust (Closing)

Jef(11)

Branch

Debtors

(Discount Jef(8)

Allowed + Bad Debts)

BRANCH DEBTORS ACCOUNT

Particulars

Debit

Particulars

Credit

Opening

Balance

Brought ******

Cash Received

Jef(4)

Forward

Branch Stock (Credit Sales)

Jef(2)

Branch Stock (Sales Return)

Jef(5)

Branch Expense (Bad Debts + Jef(8)

Discount Allowed)

Balance Brought Forward

******

STOCK RESERVE ACCOUNT

Particulars

Debit

Particulars

Credit

Branch Adjustment (Transfer of Jef(12)

Opening Stock Reserve Brought ******

Opening Balance)

Forward

Closing Stock Reserve Balance ******

Branch Adjustment (Closing Jef(13)

c/f

Loading)

BRANCH ADJUSTMENT ACCOUNT

Particulars

Debit

Particulars

Credit

Branch Stock (Shortage)

Jef (9)

Branch Stock (Surplus)

Jef(10)

Branch Expense (Closed)

Jef (11)

Branch Stock Reserve (Opening

Jef(12)

Balance)

Branch Stock Reserve (Closing)

Jef (13)

Goods Sent to Branch (Loading)

Jef(14)

Profit

Loss

Account Jef (16)

(Balancing Figure)

Note: (Jef = Journal Entry Reference)

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