ACCOUNTING FOR BUSINESS.II BRANCH ACCOUNTS NOTES

BRANCH ACCOUNTS NOTES

1. DR KUMAR J ASSOCIATE PROFESSOR ACCOUNTING FOR BUSINESS.II   BRANCH ACCOUNT

2. Meaning of Branch Accounting  Branch accounting is a double-entry bookkeeping technique which is used by a business or organisation to maintain separate accounts for each operating location or branch. Its goal is to optimise transparency and cash flow and analyse each branch’s performance and financial standing. In a branch accounting system, branches create separate balance sheets, trial balances and profit and loss account statements.

3. Balance accounts are typically found in multinational organisations , geographically dispersed companies and chain operators. However, after keeping their own books, the branches send them to their head office to combine them with other units.

4. Types of Branch Accounting There are four types of branch accounting which are as follows: 1. Dependent Branch These branches do not maintain their own set of books. The head office collectively manages its profit and loss along with the balance sheet. The separate branches provide only a few pieces of information like inventory, cash accounting and debtor accounting .

5. The head office manages the branch accounts using any of the following methods: Debtor system Stock and debtors method Wholesale branches method Final accounting method

6. 2. Independent Branch An independent branch maintains its own books, whether it is an overseas branch or a domestic branch. The technique for calculating the branch accounts is similar in both cases except when it is located in a foreign country. The trial balance received in a foreign currency will be converted to the currency of the country where the head office is located .

7. 3. Foreign Branch The accounting process is similar to that of a home branch. However, in this case, converting the trial account balance to the home currency is a must. Entries will be issued for transit goods and transit cash after reviewing the trial balance receipt.

8. 4. Home Branch Home branches have complete control over their books. They can devise their own trial balances and final accounts and later forward the copies of these accounts and balances to the head office to include them in their books. Therefore, an account is present in the records of the head office that is similar to the individual account.

9. Advantages of Branch Accounting Here are some of the advantages of branch accounting: It helps in understanding the profit and loss borne by every branch.  Helps in understanding the rent, salary, wages and expenses of each branch individually.

10.   Guides in understanding the cash position and debtor’s inventory of every branch. Analysing the performance and progress of each branch. Decision-making becomes easier after analysing the branch’s performance. It helps in the proper operation of the branches.

11. Disadvantages of Branch Accounting Mentioned below are some of the disadvantages of branch accounting: It involves extra cost and workforce. Branch accounting requires a separate manager for every branch, and this can, in turn, lead to mismanagement.

12. It might lead to delays in decision-making due to the requirement for extra staff. Requires extra infrastructure at each location. Converting the trial balance of every foreign branch might not always be possible on time.

13. Features of Dependent Branches Dependent branches mainly sell goods which are supplied by the head office for cash and also on credit to approved customers if authorized to do so by the head office. 2) Generally, cash collected is deposited into a local bank to the credit of the head office. 3) All expenses of regular nature are paid directly by the head office

14. . 4) For meeting petty expenses, the branch manager is provided with cash, which is reimbursed by H.O. from time to time on an imprest system. 5) Such Branches do not maintain accounts books for ascertainment of profit/loss. But in order to supply the requisite information to the head office, some memorandum records such as, cash books; stock register, sales book etc. are maintained.

15. Independent Branch : Independent branches are those which maintain complete system of accounting. This particularly happens when their sizes are very large due to various functional complexities. In short, they prepare their accounts independently, i.e., they also purchase and sell goods for cash and credit independently in addition to the goods that are supplied by the Head Office.

16. They may supply goods to Head Office, pay expenses and deposit cash in their own account like an independent unit. Thus, they maintain their own accounts under Double Account System. That is why they are called Independent Branch. Procedure for Maintaining Accounts of an Independent Branch!

17. Characteristics of an Independent Branch: Independent Branch keeps a complete set of books. Such Branch gets goods from Head Office and from outside parties. It has its own Bank Account. Thus, the Branch keeps frill system of accounting. 2. It prepares its own Trial Balance, Trading and Profit and Loss Account and Balance Sheet. Copies of these statements are sent to Head Office for incorporating in the Head Office Books.

18. 3. The books contain an Account called “Head Office Account” or “Head Office Current Account” which is credited with everything received from the Head Office and debited with everything sent to Head Office. That is, all transactions relating to Head Office are recorded in this Account. The Head Office Current Account is thus a Proprietorship Account (i.e. Capital Account).