Branch accounting stock and debtors method

Stock and Debtors Method of Branch Accounting for B. Com. , B. Com (H) and other students of Financial Accounting

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

2. Important Terms Branch Stock It is unsold goods at a Branch at the beginning/end of the year. Branch Debtors These are debtors of the branch. Goods Sent or supplied to Branch It is the goods supplied by the Head Office to its Branch for sale. It may be recorded at Cost or Invoice Price.

3. Important Terms (Contd.) Cost Price It is cost of goods to the Head Office Invoice Price It is the price at which the HO invoices goods to the Branch. It includes Cost plus a fixed margin. Usually Branch is expected to sell the goods at Invoice Price. Loading It is the difference between Invoice Price and Cost Price.

4. Ledger Accounts to be prepared Branch Stock A/c Branch Debtors A/c Branch Expenses A/c Branch Adjustment and Profit and Loss A/c Branch Petty Expenses A/c

5. Branch Stock A/c Branch Stock A/c (At Invoice Price) Dr. Cr. Particulars Amt. Particulars Amt. To Balance b/d (Op.) By Branch Cash A/c (Cash Sales) To Goods Sent to Branch A/c By Br Debtors A/c ( Credit Sales) To Sales Return By Goods Sent to Branch A/c (Return by Branch) To Br Adjustment A/c (Surplus)* B/F By Br Adjustment A/c (Normal Loss of Goods) By Br Profit & Loss A/c (Abnormal Loss of Goods - cost) By Br Adjustment A/c (Abnormal Loss of Goods – loading only ) By Shortage of Goods* B/F By Balance c/d ( Clo .)

6. Notes to Branch Stock A/c If out of the abovementioned items (other than Surplus and Shortage), 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.” Normal Loss of goods is transferred to Branch Adjustment A/c Abnormal Loss of Goods (cost part) is transferred to Branch P & L A/c and loading part is transferred to Br. Adjustment A/c. Shortage of Goods may be treated as Normal Loss or Abnormal Loss and it will be treated accordingly. Surplus (assuming as normal gain or overcharging of price) is transferred to Branch Adjustment A/c .

7. Branch Debtors A/c We may also find any information relating ‘Branch Debtors, Credit Sales, ‘Cash Received from Debtors’ if missing from Branch Debtors A/c . Branch Debtors A/c Dr. Cr. Particulars Amount Particulars Amt. To Balance b/d (Op.) By Cash Received To Br Stock A/c ( Credit Sales ) By Sales Return By Bad Debts By Allowances By Discount Allowed By Balance c/d ( Clo .) XXX XXX

8. Branch Expenses A/c Particulars Amt. Particulars Amt. To Bank A/c – expenses paid x x x By Branch Adjustment A/c (Gross Profit) x x x To Bad Debts x x x By Insurance Claim x x x To Discount Allowed x x x By Profit and Loss A/c x x x To Allowances x x x To Depreciation x x x X X X X X X

9. Branch Adjustments A/c Particulars Amt. Particulars Amt. Stock Reserve A/c (Loading on Closing Br. Stock) x x x Stock Reserve A/c (Loading on Opening Br. Stock) x x x Br. Stock A/c (Normal Loss of Goods) Inv. Price Goods Sent to Branch A/c (Loading on goods sent to Branch) x x x Br. Stock A/c (Abnormal Loss of Goods) Loading Surplus (Assuming normal gain) Inv. Price Shortage (Abnormal Loss) Loading Br. Profit and Loss A/c (Gross Profit ) x x x Br. Profit and Loss A/c (Gross Loss ) x x x X X X X X X

10. Branch Profit and Loss A/c Particulars Amt. Particulars Amt. To Branch Adjustment A/c (Gross Loss x x x By Branch Adjustment A/c (Gross Profit) x x x To Br . Expenses A/c By Insurance Claim x x x To Abnormal Loss of Goods Cost part By Gen. Profit and Loss A/c (Loss) x x x To Shortage (Abnormal Loss) Cost part To General Profit and Loss A/c (Profit) x x x X X X X X X

11. S tock Reserve A/c Date Particulars Amt. Date Particulars Amt. 31.3.20x2 Br. Adjustments A/c ( transfer of Loading on Opening Stock ) x x x 1.4.20x1 Balance b/d (Loading on Opening tock ) x x x 31.3.20x2 Balance b/d (Loading on Closing Stock ) x x x 31.3.20x2 Br. Adjustments A/c (Creation of Loading on Closing Stock ) x x x XXX XXX This account is prepared for recording loading on Opening and Closing HP Stock.

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