Branch and Departmental Accounts - 040803

Branch Accounts and Departmental Accounts.
Introduction
As a business grows, it may open branches in different towns and cities within country or outside
country in order to market its product over a large territory and, thus, increase its profits. A branch
may be defined as a section of an enterprise, geographically separated from the rest of the business,
controlled by a Head Office and generally carrying on the same activities as of the enterprise. For
example, Bata Shoe Co. has branches in various cities all over the country. The same example holds
good for a commercial bank also.
Meaning of Branch
The term ‘Branch Accounts’ refer to record of transaction of branches, whether relating
to deal with Head Office or with outsiders or deal between different branches in the books of
Head office. In order to exercise greater control over the branches, it is necessary to ascertain
profit or loss made by such branches separately. For this purpose, a proper accounting system
is to be adopted for recording business transactions between Head Office and Branches. The
accounting system to be adopted for the branch depends upon the size and nature of branch
and the degree of control required by the Head Office.
Type of Branches
A. Dependent Branches
B. Independent Branch
C. Foreign Branch
A. Dependent Branches
Dependent branches are those branches which are not keeping their own separate set of books of
accounts. The relation between head office and branch is just like agency, therefore, these are also
known as agency branches. The following are the salient features of such a branch:
(i) These branches generally depend upon the head office for supply of goods. However,
the branch may be allowed to make purchases from the local parties.
(ii) All expenses of the branch are directly paid by the head office.
(iii) In order to meet the petty expenses of the branch, e.g., conveyance expenses,
entertainment expenses etc., may be provided with the petty cash from the head
office.
(iv) Normally branches receiving goods from head office selling for cash only but also
selling on credit if it is authorised by the head office.
(v) Cash received from branch from its debtors or on account of cash sales is daily
remitted to head office or deposited into a bank account opened in the name of the head office.
(vi) Such branches maintain certain memorandum records only such as cash book,
debtors account and stock registers.
Accounting procedure :
In case of a dependent branch, the head office may keep accounts of the branch according to the
following methods:
1. Debtors or Direct Method
2. Stock and Debtors Method
3. Wholesale Branch Method
4. Final Accounts Method
Debtors or Direct Method
Under this method, head office opens one account for one branch. This account is called
Branch Account . The object of this account is to disclose branch profit or loss. This branch
account is a nominal account. The head office maintains this account in its books. Normally
this method is followed in case of branches of small size.
Stock and Debtors system (Analytical method)

If it is desired to exercise a more detailed control over the working of a branch, the accounts of the
branch are maintained under what is described as the stock and debtors method. In this method, the
head office keeps separate accounts relating to various types of transactions at the branch instead of
one branch account. The following accounts are kept in the head Office books relating to a branch
under this system
• Branch Stock Account
• Branch Debtors Account.
• Branch Expenses Account.
• Branch Adjustment Account (required only when the goods are sent at invoice price)
• Branch Profit and Loss Account.
• Goods sent to the Branch Account
Whole sale Branch system

Sometimes, head office opens its own retail branches and sells goods through them in
addition to selling goods through wholesalers. The head office invoices the goods to the
wholesalers at wholesale price while branches sell goods to the consumer at retail price. Since
retail price is more than the whole sale price, hence more profit is earned on sales through its
own branch but the entire profit can not be treated as branch’s profit. However, the branch’s
profit will be equal to the difference between wholesale price and retail price and remaining
profit,
Final Accounts Method

Characteristics of an Independent Branch:
• Such Branch gets goods from Head Office and from outside parties. It has its own Bank Account.
• It prepares its own Trial Balance, Trading and Profit, and Loss Account and Balance Sheet.
• There may be inter-branch transactions. That is, goods transferred by one Branch to another Branch
of the same Head Office.
• A combined Balance Sheet of branch and H.O is prepared by the branch.
DEPARTMENT:
A Department is a division or segment established by the parent organization to attain common and
specified operational functions. Individually each department is responsible for its profit or loss.
The Department accounts are the set of accounts prepared to evaluate each department or division’s
operational performance and trading results. These are prepared at any given time to evaluate the
earning capacity and find the operational leakage.
Where a huge business with various trading activities is conducted under one roof, it is generally
divided into a number of departments and each department deals with a particular kind of goods or
service.
A departmental accounting system is an information system that records the financial activities of
individual departments in situations where a firm or a company has two or more departments. After
all, it would be difficult to assess the performance of an individual department if the financial
information of several different departments were put together.

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Branch Accounts and Departmental Accounts.

Stock and Debtors system (Analytical method)

Whole sale Branch system

Final Accounts Method

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