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 branches
in different sectors of Chandigarh as well as in different cities
all over India. Likewise, Bata Shoe Co., State Bank of India
LIC Housing Finance, Tata Finance Ltd., etc. have many
branches all over the country.
 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.
This is a inter branch transaction and will be recorded by the
head office and concerned branches as follows:
 Head office books Agra branch Delhi branch
Delhi branch A/c Dr. Head office A/c Dr. 5000 Goods from branch A/c Dr.
5000 5000
To goods sent to branch
To Agra branch A/c A/c 5000 To head office A/c 5000
5000
(being goods sent to Delhi (being goods received from
(Being goods transferred branch) Agra branch)
from agra to delhi
branch)

GOODS IN TRANSIT: When the goods

sent by head office are not received by the branch
till the date of closing of books of accounts, those
goods are called goods in transit.
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
cash on 2nd April. The head office will pass entry on
2nd April when the cash is actually received. For a few
days, therefore, the two accounts will show different
balances.
 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
head office branch
Goods in transit Goods in transit
(a) Goods A/c Dr. A/c Dr.
in transit To branch A/c To head office A/c
Cash in transit A/c Cash in transit A/c
(b) Cash Dr. Dr.
in transit To branch A/c To head office A/c
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 us the profit or loss made at branch. The
journal entries to be made at the head office
under this system are as follows:
 JOURNAL ENTRIES

1 For recording branch assets Branch A/c Dr.

at the beginning of the year To Branch Assets A/c
2 For recording branch Branch liabilities A/c Dr.
liabilities at the beginning To branch A/c
of the year
3 For goods sent to branch Branch A/c Dr.
To goods sent to branch A/c
4 For goods returned by Goods sent to branch A/c Dr.
branch to H.O. To Branch A/c
5 For cash sent to Branch A/c Dr.
branch for expenses To cash/bank A/c
6 For cash remitted Cash/bank A/c Dr.
by branch to H.O. To branch A/c
7 For recording Branch assets A/c Dr.
branch assets at the To branch A/c
end of the year
8 For recording Branch A/c Dr.
branch liabilities at To branch liabilities
the end of the year.
9 For closing branch (a)If profit (i.e. credit side total >
account 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 cash expenses
which are paid by the branch manager. From the
following particulars, prepare the branch account in
the books of head office:
Stock on 1st April, 2000 5000
Stock on 31st March, 2001 6000
Sundry debtors on 1st April, 2000 2800
Sundry debtors on 31st March,2001 3600
Cash sales for the year 21600
Credit sales for the year 14000
Cash remitted to the H.O. 30000
Machinery purchased by the branch 2400
Goods invoiced from the H.O. 36400
Expenses paid by the branch 240
Expenses paid by the H.O. 3280
H.O. sent cash to purchase safe for the branch 2600
Solution:
BRANCH ACCOUNT
To branch stock 5,000 By cash remitted 30,000
To branch debtors 2,800 By St. reserve (5000 x 1/5) 1,000
To goods sent to branch 36,400 By goods sent to branch 7,280
(36400 x 1/5)
To bank (expenses) 3,280 By branch stock 60,000
To bank (safe) 2,600 By branch debtors 3,600
To stock reserve (6000 x 1,200 By branch machinery 2,400
1/5)
To general P&L A/c 3,760 By branch safe 2,600
(Profit)
By branch cash 2,160

55,040 55,040
 Working notes:

(i) calculation of cash received from debtors:

DEBTORS ACCOUNT
To balance b/d 2,800 By cash (bal. fig.) 13,200

To sales (credit) 14,000 By balance c/d 3,600

16,800 16,800
 (ii) Calculation of closing cash balance:

To sales 21600 By cash 30000

remitted to
H.O.
To debtors 13200 By machinery 2400
purchased
By petty 240
expenses
By balance c/d 2160

34800 34800
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 branch account under the present
system will be in the nature of a personal account and must be
distinguished from the branch account prepared under the
debtors system in which case is a nominal account.
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 transactions of the branch
were as follows:
Stock on 1-1-1999 11000 Return inwards 500
Debtors on 1-1-1999 1700 Cheques sent to branch:
Petty cash on 1-1-1999 100 Rent 600
Cash sales 2650 Wages 200
Goods sent to branch 20000 Other expenses 900
Collection on ledger 21000 Stock on 31-12-1999 13000
accounts
Goods returned to H.O. 400 Debtors on 31-12-1999 2000
Bad debts 300 Petty cash on 31-12-1999 125
Allowances to customers 250 (including miscellaneous
income of Rs. 25 not
remitted to H..O.)

Prepare the branch trading and profit & loss A/c and
branch account for the year ended 31st Dec, 1992.
Solution:
Branch trading and profit and loss account
for the year ended 31st December 1999
To opening stock (cost) 8800 By sales:
(11000-2200) Cash
2650
To goods sent to branch Credit
22350
(20000-4000)
16000 25000
Less: returns to H.O. 15680 Less: returns inward 24500
320 500
(400-80) By closing stock 10400
To wages 200 (13000-
2600)
To gross profit c/d 10220
 34900 34900
To bad debts 300 By gross profit b/d 10220
To allowances 250 By miscellaneous 25
income
To rent 600
To other expenses 900
To net profit 8195
10245 10245
 BRANCH ACCOUNT (Personal)
To balance b/d 10600 By remittances to H.O. 23650

(8800+1700+100) (2650+21000)

To goods sent to branch 15680

less returns (at cost)
To bank (expenses) 1700 By balance c/d 12525

To profit 8195 (10400+2000+125)

36175 36175
Working notes: Calculation of credit sales

Branch debtors A/c

To balance b/d 1700 By cash 21000

To sales (credit) (bal. 22350 By bad debts 300

fig.)
By return inwards 500

By allowances 250

By balance c/d 2000

24050 24050
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)
6. Goods sent to branch account
The journal entries to be made at the head office under this system are as
follows:
 JOURNAL ENTRIES
The journal entries to be made at the head office under this system are as
follows:
1 For goods sent to branch Branch stock A/c Dr.
To goods sent to branch A/c
2 For goods returned by branch to Goods sent to branch A/c Dr.
H.O. To branch stock A/c
3 For sales made by branch (a) If cash sales:
Cash/bank A/c Dr.
To branch stock A/c
(b) If credit sales:
Branch debtors A/c Dr.
To branch stock A/c
4 For goods returned by branch debtors Branch stock A/c Dr.
To branch debtors A/c
5 For cash received from debtors Cash/bank A/c Dr.
To branch debtors A/c
6 For discount allowed to debtors Branch expenses A/c Dr.
To branch debtors A/c
7 For bad debts Branch expenses Dr.
To branch debtors A/c
8 For goods returned by branch directly Goods sent to branch A/c Dr.
to head office Branch adjustment A/c Dr.
To branch debtors A/c
9 For agreed allowances to customers Branch adjustment A/c Dr.
off selling price already taken into to branch Stock A/c
account while invoicing
10 For loss or shortage of ( i) if normal loss
stock Branch adjustment A/c 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 claim Insurance claim recoverable A/c Dr.
recoverable To branch P & L A/c

12 For surplus in stock Branch stock A/c Dr.

To branch adjustment A/c
To branch P & L A/c
13 For goods sent by one Goods sent to branch A/c Dr.
branch to another branch Branch adjustment A/c Dr.
To branch stock A/c
14 For goods received by one Branch stock A/c Dr.
branch to another branch To goods sent to branch A/c
to branch adjustment A/c
15 For apparent profit over the Branch stock A/c Dr.
invoice price To branch adjustment A/c

16 For branch expenses paid in Branch expenses A/c Dr.

cash To cash A/c

17 For closing ‘branch expenses Branch adjustment A/c Dr.

A/c’ Branch P & L A/c Dr.
To branch expenses A/c
18 For closing ‘goods sent to Goods sent to branch A/c Dr.
branch A/c’ To purchases or trading A/c
19 For loading (a) For loading of 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.
To stock reserve A/c
20 For closing ‘branch Branch adjustment A/c Dr.
adjustment A/c’ To branch P & L A/c
21 For ‘branch P & L A/c’ Brasnch P & L A/c Dr.
To General P & L A/c
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 System, to show the profit earned
at the branches:
 AGRA GOA
Stock on 1st April, 1990 (invoice price) 9300 15600
Debtors on 1st April, 1990 6800 8700
Goods sent to branch (cost price) 34000 36000
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 H.O. 1500
Goods transferred from Goa to Agra 2100 2100
Surplus of stock 300
Shortage of stock 450
Discount allowed to customers 200 350
Expenses at branches 5400 6700
 BRANCH STOCK ACCOUNT
Particulars Agra Goa Particulars Agra Goa

To bal b/d 9300 15600 By cash 25010 35000

To goods sent to branch 51000 54000 By branch debtors 31000 30100
To braqnch debtors 1200 1500 By goods sent to branch 1500 -
To goods sent to branch By goods sent to branch
A/c
(goods received from 2100 - (goods sent to Agra) - 2100
Goa)
To branch adjustment By branch adjustment
(loading of surplus) - 100 (loading of shortage) 150 -
To branch P & L A/c By branch P & L A/c
(cost of surplus) - 200 (cost of shortage) 300 -
By balance c/d 5640 4200
63600 71400 63600 71400
 Branch Debtors A/c
To balance b/d 6800 8700 By cash 30400 29800
To branch stock A/c 31000 30100 By branch stock 1200 1500
(returns)
By branch exp. 200 350
(discount)
By balance c/d 6000 7150
37800 38800 37800 38800

Branch expenses A/c

To branch debtors 200 350 By branch P & L 5600 7050
A/c
To cash 5400 6700
5600 7050 5600 7050
 Branch adjustment A/c
To stock reserve 1880 1400 By stock reserve 3100 5200
To branch stock By goods sent to 17200 17300
branch A/c
(loading of shortage) 150 - By branch stock A/c
To branch P& L 18270 21200 (loading of surplus) - 100
20300 22600 20300 22600

Branch P & L A/c

To branch expenses A/c 5600 7050 To branch adj. A/c
To branch stock A/c (gross profit) 18270 21200
(cost of shortage) 300 - By Br. stock A/c
To net profit 12370 14350 (cost of surplus) - 200
18270 21400 18270 21400
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 book
(c) Ledger (g) sales book
(d) Stock register
 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.
To branch trading A/c
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)