Branch accounting debtors method

Accounting for Branch Transactions for B. Com., B. Com. (H) and other students of Financial Accounting.

1. Accounting for Branches Debtors or Direct Method Mahesh Chandra Sharma Associate Professor Department of Commerce Shaheed Bhagat Singh Eve. College (University of Delhi) India

2. Brach Accounting A business firm may open branches in the same city or in other cities of the country to expand its business. Branches are controlled by a central office, often called Head Office (HO). Branch accounting is concerned with recording trading transactions at branches, transactions between the Head Office and a Branch and ascertaining profits earned or loss incurred by a branch.

3. Types of Branches Types of Branches Domestic or Home Branches (Branches within the country) Dependent Branches Independent Branches Foreign Branches (Branches outside the country)

4. Dependent Branches These branches sell only those goods which are supplied by the HO. Goods supplied to branches for sale may be invoiced at (a) cost, (b) selling price or (c) at invoice price All branch expenses are directly paid by the HO. Branch managers may be allowed to incur petty expenses out of the petty cash supplied by the HO. Branches are allowed to sell goods on cash basis. Some branches may be allowed to sell goods on credit basis. Branches are instructed to remit the amount of cash sales and collection from debtors to the HO on daily basis.

5. Accounting for Dependent Branches Accounting by Branches Such branches do not maintain complete accounting for their transactions, except few essential books such as Cash Book, Sales Book, Stock Register, etc. Accounting by HO Accounts for branch transactions are maintained in HO books. Branches supply the necessary information to the HO.

6. Accounting Methods for Dependent Branches Debtors or Direct Method Stock and Debtors Method Final Account Method Wholesale Branch Method Note: In this presentation Debtors Method has been explained. For other methods, see my other presentations.

7. Debtors or Direct Method Under this method, HO opens only one account for every branch, called “Branch Account”. Branch Account is a combination of Personal Account (of a Branch as a debtor) and nominal account (as it is prepared to ascertain profit or loss made by the Branch).

8. Debtors Method: Journal Entries in the Books of Head Office Date Particulars Amt. (Dr.) Amt. (Cr.) (1) For recording opening balances of assets at the Branch (for example Branch at Agra) Agra Branch A/c Dr. Xx To Branch Stock A/c * X x To Branch Debtors A/c X x To Branch Cash /Petty Cash A/c X x To Branch Fixed Asset A/c** X x * Branch stock may be recorded at cost or invoice price. ** Separate Account for each fixed asset by its name like, Furniture, Computer, etc.

9. Journal Entries in the Books of HO (Contd.) Date Particulars Amt. (Dr.) Amt. (Cr.) *Note: Branch Stock may be recorded at Cost or at Invoice Price. If it is recorded at Invoice Price, then for loading (Invoice Price − Cost Price) on opening stock, a following entry will be passed. (2) Stock Reserve A/c Dr. Xx To Agra Branch A/c X x (For loading on opening stock) (3) For recording opening balance of branch liability, if any: Agra Branch A/c Dr. Xx To Branch Liability A/c Xx

10. Journal Entries in the Books of HO (Contd.) Date Particulars Amt. (Dr.) Amt. (Cr.) (4) For goods supplied by HO to Branch at Cost or at Invoice price Agra Branch A/c Dr. Xx To Goods Sent to Branch A/c Xx Note: If Goods are supplied by HO to Branch at Invoice price, then for loading (Invoice Price − Cost Price): (5) Goods Sent to Branch A/c Dr. Xx To Agra Branch A/c Xx

11. Journal Entries in the Books of HO (Contd.) Date Particulars Amt. (Dr.) Amt. (Cr.) (6) When goods is returned by Branch to HO: Goods Sent to Branch A/c Dr. Xx To Agra Branch A/c Xx Note: If Goods are supplied by HO to Branch are recorded at Invoice price, then for loading on Goods returned by Branch: (7) Agra Branch A/c Dr. Xx To Goods Sent to Branch A/c Xx (8) For branch expenses paid by HO Xx Agra Branch A/c Dr. Xx To Bank A/c Xx

12. Journal Entries in the Books of HO (Contd.) Date Particulars Amt. (Dr.) Amt. (Cr.) (9) For cash remitted by HO to Branch for petty expenses Xx Agra Branch A/c Dr. Xx To Bank A/c Xx (10) Cash received from Branch Bank A/c Dr. Xx To Agra Branch A/c Xx

13. Journal Entries in the Books of HO (Contd.) Date Particulars Amt. (Dr.) Amt. (Cr.) (11) For recording Closing balances of assets at the Branch : Branch Stock A/c * Dr. Xx Branch Debtors A/c Dr. Xx Branch Petty Cash A/c Dr. Xx Branch Fixed Asset A/c (After Depreciation) Dr . Xx To Agra Branch A/c X x *Note: Branch Stock may be recorded at Cost or at Invoice Price. If it is recorded at Invoice Price, then for loading (Invoice Price − Cost Price) on Closing stock, a following entry will be passed.

14. Journal Entries in the Books of HO (Contd.) Date Particulars Amt. (Dr.) Amt. (Cr.) *Note: Branch Stock may be recorded at Cost or at Invoice Price. If it is recorded at Invoice Price, then for loading (Invoice Price − Cost Price) on Closing stock, a following entry will be passed. (12) Agra Branch A/c Dr. Xx To Stock Reserve A/c X x (13) When Branch Account discloses a profit (Balancing figure on Debit side): Agra Branch A/c Dr. Xx To General Profit & Loss A/c X x Note: In case of loss, the above entry shall be reversed.

15. Journal Entries in the Books of HO (Contd.) Date Particulars Amt. (Dr.) Amt. (Cr.) (14) To close the “Goods Sent to Branch A/c”: Goods Sent to Branch A/c Dr. Xx To Trading A/c X x

16. Goods-in-Transit Date Particulars Amt. (Dr.) Amt. (Cr.) Sometimes Goods sent by HO to branch is not received by the branch at the time closing accounts. Such goods is called ‘Goods-in-Transit”. The HO will pass the following entry for it: Goods –in-Transit A/c Dr. Xx To Branch A/c X x Next Year: The above entry is reversed. Branch A/c Dr. Xx To Goods –in-Transit A/c X x

17. Branch Account at Cost (Format) Dr. Cr. Particulars Amount Particulars Amt. To Balance b/d By Balance b/d Br Stock Branch Liability Br Debtors Br Cash/Petty Cash By Goods Sent to Branch A/c (Goods returned by Br.) Br Fixed Assets By Bank (Cash remitted by Br.) To Goods Sent to Branch A/c To General P & L A/c (Loss) To Bank (Cash remitted for expenses) By Balance c/d Br Stock To Bank (Cash remitted for Petty Expenses Br Debtors Br Cash/Petty Cash To General P & L A/c (Profit) Br Fixed Assets To Balance b/d Branch Liability

18. Branch Account at Invoice (Format) When Goods Sent to Branch is recorded at Invoice price, following additional entries are to be made Dr. Cr. Particulars Amount Particulars Amt. By Balance b/d Stock Reserve To Goods Sent to Branch A/c (Loading on Goods returned by Branch) By Goods Sent to Branch A/c (Loading on Goods Sent to Branch) To Balance c/d Stock Reserve

19. Finding Missing Figures When any information relating ‘Goods Sent to Branch’ , ‘Branch Stock’ and Branch Sales is missing, a Memorandum Branch Stock A/c should be prepared . Memorandum Branch Stock A/c (At Invoice Price) Dr. Cr. Particulars Amount Particulars Amt. To Balance b/d (Op.) By Sales To Goods Sent to Branch A/c Cash Sales To Sales Return Credit Sales To Surplus (BF) By Goods Returned to HO By Normal Loss of Goods By Abnormal Loss of Goods By Shortage of Goods (BF) By Balance c/d ( Clo .)

20. Finding Missing Figures (Contd.) Notes to Memorandum Branch Stock A/c: If out of the abovementioned items, only one item is missing, then it will be balancing figure. If all the abovementioned items are given, then balancing figure on the Debit side will be assumed “ Surplus ” and balancing figure on the Credit side will be assumed “Shortage of Goods.” Any type of Normal or Abnormal Loss, Shortage or Surplus is not recorded in the Branch A/c.

21. Finding Missing Figures When any information relating ‘Branch Debtors, Credit Sales, Cash Received from Debtors is missing a Memorandum Branch Debtors A/c Should be prepared. Memorandum Branch Debtors A/c Dr. Cr. Particulars Amount Particulars Amt. To Balance b/d (Op.) By Cash Received To Credit Sales By Sales Return By Bad Debts By Allowances By Discount Allowed By Balance c/d ( Clo .) XXX XXX

22. Finding Missing Figures (Contd.) Notes to Memorandum Branch Debtors A/c: If out of the abovementioned items, only one item is missing, then it will be balancing figure. For example : Opening or Closing Debtors, Credit Sales, Cash received from Debtors, etc. Bad Debts, Discount Allowed, Allowances are not recorded in Branch A/c.

23. Finding Missing Figures When any information relating ‘Petty Cash’ or ‘Petty Expenses’ is missing a Memorandum Branch Petty Cash A/c should be prepared. Memorandum Branch Petty Cash A/c Dr. Cr. Particulars Amount Particulars Amt. To Balance b/d (Op.) By Petty Expenses paid To Cash sent to Branch for Petty Cash By Balance c/d ( Clo .) XXX XXX

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