WHAT IS BRANCH?

The aim of every business is to grow

and increase its sales volume so as to
earn more and more profits. To achieve
this objective the strategy is to make
market its products/services over a
large territory, which is possible only if
the business decide to split its business
into certain divisions or parts. These
are called branches. For example, Bank
of Punjab Ltd. With its registered head
office at Chandigarh has opened up its
 TYPES OF BRANCHES

HOME FOREIGN
BRANCHES BRANCHES

DEPENDENT INDEPENDENT
BRANCHES BRANCHES
 HOME BRANCHES
When a branch is opened in the same country
where the head office is registered, it is called
a home branch. Home branch are of two types-

(a) Dependent branches- The branch that do

not maintain a complete record of its
transactions are called ‘Dependent branches’.
(b) Independent branches- Independent
branches are those branches which maintain a
complete record of its transactions.
 IMPORTANT TERMS
1. INTER-BRANCH TRANSACTIONS- When a
branch sends goods or cash to another
branch, it is called inter-branch
transactions. Examples- Delhi branch
sends goods to Agra branch etc.
Accounting treatment: The best way to deal
with inter-branch transactions is to
record these transactions by the
concerned branches through the head
office. This can be illustrated with the
help of following example:
1. Agra branch sends goods to Delhi branch for Rs.5000.
Head office Agra branch Delhi branch
books
Delhi branch Head office A/c Goods from
A/c Dr. 5000 Dr. 5000 branch A/c Dr.
To Agra 5000
To goods sent to
branch A/c branch A/c 5000 To head office A/c
5000 5000
(being goods
(Being goods sent to Delhi (being goods
transferred branch) received from
from agra to Agra branch)
GOODS IN TRANSIT: When the
delhi branch)

goods sent by head office are

not received by the branch till
the date of closing of books of
accounts, those goods are
CASH IN TRANSIT: It is quiet
common that the head office and
the branch send cash to each
other at regular intervals.
Suppose, Ludhiana branch sends
cash to head office on 30th march.
The branch will immediately debit
‘Head office account’ and credit
‘cash account’. But the head office
will not pas the entry for receipt
of cash till cash is actually
received. Now further suppose
that the head office receives the
 Procedure for reconciliation
• Compare the balance of ‘branch account’ in
the head office books with the balance of
‘head office’ in the books of branch. If the
two balances are same, there is no need for
reconciliation. But in case of difference, the
following steps must be followed.
• Find out the reason for the difference in
balances.
• Pass the following adjustment entries either
in the books of head office or in the books of
branch, but not in both sets of books.
Reasons If the If the
for the adjustment adjustment
difference entry is entry is
passed in passed in
the books of the books of
(a) Goods head
Goodsoffice
in branch
Goods in
transit A/c transit A/c
in transit Dr. Dr.
To branch To head
A/c office A/c
(b) Cash Cash in Cash in
transit A/c transit A/c
in transit
THERE ARE THREE METHODS OF KEEPING
ACCOUNTS OF DEPENDENT BRANCHES:

• DEBTORS SYSTEM
• FINAL ACCOUNT SYSTEM
• STOCK AND DEBTOR
SYSTEM
This system is used for
branches of small size.
Under this method the head
office prepares a ‘branch
account’ separately for each
branch. Branch account is a
nominal account which gives
 JOURNAL ENTRIES

1 For recording Branch A/c Dr.

branch assets at To Branch Assets
the beginning of A/c
the year
2 For recording Branch liabilities
branch liabilities A/c Dr.
at the beginning To branch A/c
of the year
3 For goods sent Branch A/c Dr.
to branch To goods sent to
branch A/c
5 For cash Branch A/c Dr.
sent to To cash/bank A/c
branch for
expenses
6 For cash Cash/bank A/c Dr.
remitted by To branch A/c
branch to
H.O.
7 For Branch assets A/c Dr.
recording To branch A/c
branch
assets at
the end of
9 For closing (a)If profit (i.e. credit
branch account side total > debit
side total)
Branch A/c
Dr.
To general P & L A/c
(b) If loss (i.e. credit
side total < debit
side total)
General P & L A/c
Dr.
To Branch A/c
Let us take an example to understand
the format of branch account:

The Atlas Cycles Co. has a

branch at Rohtak. Goods are
invoiced to the branch at cost
plus 25%. Branch is instructed to
deposit cash every day in the
head office account in the bank.
All the expenses are paid by
cheque by the H.O. except petty
Stock on 1st April, 2000 5000
Stock on 31st March, 2001 6000
Sundry debtors on 1st April, 2000 2800
Sundry debtors on 31st 3600
March,2001
Cash sales for the year 2160
0
Credit sales for the year 1400
0
Cash remitted to the H.O. 3000
0
Machinery purchased by the 2400
branch
Solution:
BRANCH ACCOUNT
To branch stock 5,00 By cash remitted 30,0
0 00
To branch 2,80 By St. reserve 1,00
debtors 0 (5000 x 1/5) 0
To goods sent to 36,4 By goods sent to 7,28
branch 00 branch (36400 x 0
1/5)
To bank 3,28 By branch stock 60,0
(expenses) 0 00
To bank (safe) 2,60 By branch debtors 3,60
0 0
To stock reserve 1,20 By branch 2,40
(6000 x 1/5) 0 machinery 0
To general P&L 3,76 By branch safe 2,60
 Working notes:

(i) calculation of cash received from debtors:

DEBTORS ACCOUNT
To balance 2,80 By cash 13,20
b/d 0 (bal. fig.) 0
To sales 14,0 By balance 3,600
(credit) 00 c/d
16,8 16,80
00 0
(ii) Calculation of closing cash balance:

To sales 21600 By cash 30000

remitted
to H.O.
To 13200 By 2400
debtors machiner
y
purchase
d
By petty 240
expense
s
Under this system the profit or loss made by
the branch is ascertained by preparing the
‘branch trading and profit & loss account’.
This account is prepared on memorandum
basis and do not form the part of the double
entry system. After preparing this account,
the next step is to incorporate profit or loss
made by branch as well as the branch assets
and liabilities in the books of head office.
This is done by preparing the ‘Branch
Account’ in the books of head office. The
This method can be explained by an
example which is given below:

A Delhi merchant has a branch

at madras to which he supplies
goods at cost + 25%. The
branch keeps its own sales
ledger and transmits all cash
received to head office every
day. All expenses are paid from
the H.O. for the year ended
31st December 1999, the
Stock on 1-1- 110 Return inwards 500
1999 00
Debtors on 1-1- 170 Cheques sent to
1999 0 branch:
Petty cash on 1- 100 Rent 600
1-1999
Cash sales 265 Wages 200
0
Goods sent to 200 Other expenses 900
branch 00
Collection on 210 Stock on 31-12- 1300
ledger accounts 00 1999 0
Goods returned 400 Debtors on 31- 2000
to H.O. 12-1999
Prepare
Bad debts
the branch trading and
300 Petty cash on 125
profit & loss A/c and branch
31-12-1999
Solution:
Branch trading and profit and loss account
for the year ended 31st December 1999
To opening stock 880 By sales:
(cost) 0
Cash
(11000-2200)
2650
To goods sent to Credit
branch
22350
(20000-
4000)
16000 25000
Less: returns to 156 Less: returns 2450
H.O. 320 80 inward 0
500
 349 349
00 00
To bad debts 300 By gross 102
profit b/d 20
To allowances 250 By 25
miscellaneous
income
To rent 600
To other 900
expenses
To net profit 819
5
 BRANCH ACCOUNT (Personal)
To balance b/d 106 By remittances 236
00 to H.O. 50
(8800+1700+1 (2650+21000)
00)
To goods sent 156
to branch less 80
returns (at
cost)
To bank 170 By balance c/d 125
(expenses) 0 25
To profit 819 (10400+2000+
5 125)
Working notes: Calculation of credit sales

Branch debtors A/c

To balance 1700 By cash 2100
b/d 0
To sales 2235 By bad debts 300
(credit) (bal. 0
fig.)
By return 500
inwards
By 250
allowances
By balance 2000
Under this system, the H.O. maintains the
following accounts for keeping records of
branch transactions:
1.Branch stock account
2.Branch debtors account
3.Branch expenses account
4.Branch adjustment account (for calculation of
gross profit or gross loss)
5.Branch profit & loss account (for calculation of
net profit or net loss)
 JOURNAL ENTRIES
The journal entries to be made at the head
office under this system are as follows:
1 For goods sent to Branch stock A/c
branch Dr.
To goods sent to
branch A/c
2 For goods returned Goods sent to branch
by branch to H.O. A/c Dr.
To branch stock
A/c
3 For sales made by (a) If cash sales:
branch Cash/bank A/c
Dr.
4 For goods returned by Branch stock A/c
branch debtors Dr.
To branch
debtors A/c
5 For cash received from Cash/bank A/c
debtors Dr.
To branch
debtors A/c
6 For discount allowed to Branch expenses
debtors A/c Dr.
To branch
debtors A/c
7 For bad debts Branch expenses
Dr.
To branch
10 For loss or ( i) if normal loss
shortage of Branch adjustment A/c
stock Dr.
To branch
stock A/c
(ii) If abnormal loss
Branch adjustment A/c
Dr.
Branch profit & loss A/c
Dr.
To branch
stock A/c
11 For insurance Insurance claim
claim recoverable A/c Dr.
recoverable To branch P & L
A/c
1 For goods Branch stock A/c
4 received by one Dr.
branch to another To goods sent
branch to branch A/c
to branch
adjustment A/c
1 For apparent Branch stock A/c
5 profit over the Dr.
invoice price To branch
adjustment A/c
1 For branch Branch expenses A/c
6 expenses paid in Dr.
cash To cash A/c
1 For closing Branch adjustment A/c
7 ‘branch expenses Dr.
A/c’
1 For loading (a) For loading of
9 opening stock:
Stock reserve A/c
Dr.
To branch
Adjustment A/c
(b) For loading of goods
sent to branch
Goods sent to branch
A/c Dr.
T o branch
adjustment A/c
(c) For loading of
closing stock
Branch adjustment A/c
Dr.
This method can be
explained by taking an
example:
Indian Soap Mills Ltd. Has two
branches at Agra and Goa. Goods
are invoiced to branches at cost +
50%. Branches remit all cash
received to H.O. and all expenses
are met by H.O. from the following
particulars, prepare the necessary
accounts, on the Stock & Debtors
 AGRA GOA
Stock on 1st April, 1990 9300 15600
(invoice price)
Debtors on 1st April, 1990 6800 8700
Goods sent to branch (cost 34000 36000
price)
Sales at branches:
Cash sales 25010 35000
Credit sales 31000 30100
Cash collected from debtors 30400 29800
Goods returned by debtors 1200 1500
Goods returned by branch to 1500
H.O.
Goods transferred from Goa to 2100 2100
Agra
 BRANCH STOCK ACCOUNT
Particulars Agr Goa Particulars Agr Goa
a a
To bal b/d 930 156 By cash 250 350
0 00 10 00
To goods sent 510 540 By branch 310 301
to branch 00 00 debtors 00 00
To braqnch 120 150 By goods sent 150 -
debtors 0 0 to branch 0
To goods sent By goods sent
to branch A/c to branch
(goods 210 - (goods sent to - 210
received from 0 Agra) 0
Goa)
To branch By branch
adjustment adjustment
(loading of - 100 (loading of 150 -
 Branch Debtors A/c
To balance 680 870 By cash 304 298
b/d 0 0 00 00
To branch 310 301 By branch 120 150
stock A/c 00 00 stock 0 0
(returns)
By branch 200 350
exp.
(discount)
By balance 600 715
Branch expenses
c/d A/c 0 0
To branch 200
378 350
388 By branch 560
378 7050
388
debtors 00 00 P & L A/c 000 00
To cash 540 670
0 0
560 705 560 7050
 Branch adjustment A/c
To stock 188 140 By stock 310 5200
reserve 0 0 reserve 0
To branch By goods 172 1730
stock sent to 00 0
branch A/c
(loading of 150 - By branch
shortage) stock A/c
To branch P& 182 212 (loading of - 100
L Branch
70 00 P surplus)
& L A/c
To branch 203
560 226
7050 To branch 203 2260
expenses A/c 00
0 00 adj. A/c 00 0

To branch (gross 182 212

stock A/c profit) 70 00
(cost of 300 - By Br. stock
shortage) A/c
A branch is said to be independent when it keeps a
full system of accounting and maintains its own
books of accounts. In other words, the branch
carries on business as an independent unit,
records all the transactions in its own books,
extracts its own trial balance and prepare its own
trading and profit & loss account and balance
sheet.
Books of accounts: an independent branch generally
maintains the following books of accounts:
(a)Journal (e) petty cash
book
(b)Cash book (f) purchase
 Procedure for incorporating branch accounts in the
books of H.O.

Under this method the following journal entries are

passed:
1.For incorporation debit side items of trading
account
Branch trading A/c Dr.
To Branch A/c
2.For incorporating credit side items of trading
account
Branch A/c Dr.
3. For closing branch trading account
(a) If gross profit
Branch trading A/c Dr.
To branch P & L A/c
(b) If gross loss
Branch P & L A/c Dr.
To branch trading A/c
4.For incorporating debit side items of P & L A/c
branch P & l A/c Dr.
To Branch A/c
5. For incorporating credit side items of P & L A/c
Branch A/c Dr.
To branch P & L A/c
6. For closing branch P & L A/c
(a) If net profit
Branch P & L A/c Dr.
To general P & L A/c
(b) If net loss
General P & L A/c Dr.
To branch P & L A/c
7. For incorporating branch assets
Branch assets A/c Dr. (individually)
To Branch A/c
8. For incorporating branch liabilities
Branch A/c Dr.
To branch liabilities A/c
(individually)