Chapter – 3 Branch Accounting Chapter outcomes: Meaning and nature of branch accounting; Advantages of branch operations; Different types of braches; Types of inland branches; Different types of accounting methods; Accounting methods applicable to dependent branches; Pro forma journal entries under debtors method; Practical exercises; Dr. BALAMURUGAN MUTHURAMAN 2015-2016

Meaning of branch accounting Branch accounting is a specialized accounting methods adopted by an organization which has branches in different location. A branch is a subordinate division of an organization. A branch is any establishment carrying on either the same or substantially the same activity as that carried on by the head office of an organization. 2015-2016

Advantages of branches When an organization operates branches in different location, the following advantages are achieved by the head office: The head office is able to extend its operations in different locations in order to exploit the business opportunities available in the places; Branch operations are considered to be an effective tool to face the competition from the rival organizations; Branch operations facilitate effective marketing network for the overall objectives of the organizations 2015-2016

4. The expansion programmes of an organization can be carried out through opening different branches; 5.Branch operations facilitate more employment opportunities; 6. Branch operations increases the turnover of the organization and thereby the profit of the organization; 7. Branch operations facilitate the organization to achieve economies of large scale operations. 2015-2016

Different types of branches Basically branches can be classified into two broad categories: Inland Branches: The branches which are located within the territory of a country in which the head office is operating are known as inland branches Foreign Branches: The branches which are located in any countries other than the home country in which the head office is operating are known as foreign branches 2015-2016

Types of inland branches The inland branches can also be classified in to the following two types: Dependent branches: The branches which do not maintain a complete record of its transactions is said to be dependent branches. These branches depend on the head office for the entire operations wherein all goods are supplied by the head office and expenses are paid by the head office. Independent branch: The branches which maintain a complete record of its transactions is said to be independent branches. These branches are having the freedom of own purchases and sales according to the marketing situations. 2015-2016

Methods of maintaining the accounts of dependent branches The following are the different methods of maintaining accounts of dependent branches: Debtors method: This method is usually adopted when the branch is small. Under this method, the head office maintains separate branch account for each branch. Such branch account is nominal nature. Its purpose is to ascertain profit or loss made by each branch 2015-2016

Pro forma Journal entries in the books of head office (under debtors method) 1. To record the opening balances of branch assets: Branch Account Dr. XXXX Brach Assets account Cr. XXXX (Being the opening balances of assets in the branch) 2. To record the opening balances of liabilities: Branch liabilities Account Dr. XXXX Branch account Cr. XXXX (Being the opening balance of liabilities in the branch) 3.When goods are supplied to the branch: Branch Account Dr. XXXX Goods sent to branch A/C Cr. XXXX (Being the goods sent to branch) 2015-2016

4. When the goods are returned by the branch: Goods sent to branch account Dr. XXXX Branch account Cr. XXXX (Being the goods returned by the branch) 5. When goods are supplied by one branch to another branch under the instruction of the head office: Branch account Cr. XXXX (Being the goods supplied to other branch) 6. When the goods supplied by the head office but not received by the branch : Goods –in-transit account Dr. XXXX Branch account Cr. XXXX (Being the goods in transit) 2015-2016

7. When the head office pays for the expenses of the branch: Branch Account Dr. XXXX Cash/Bank account Cr. XXXX (Being the expenses paid for the branch) 8. When the remittance is received from the branch: Cash/Bank account Dr. XXXX Branch Account Cr. XXXX (Being the cash received from the branch) 9. When the remittance is in-transit: Bank/Cash in transit account Dr. XXXX Branch account Cr. XXXX (Being the cash in transit) 10. Transfer of goods sent to branch: Goods sent to account Dr. XXXX Trading account Cr. XXXX (Being the goods sent to branch account transferred to trading account) 2015-2016

11. To record the closing balance of branch assets: Branch Assets Dr 11. To record the closing balance of branch assets: Branch Assets Dr. XXXX Brach account Cr. XXXX (Being the closing balance of branch assets) 12. To record the closing balance of branch liabilities: Brach account Dr. XXXX Branch liabilities account Cr. XXXX (Being the closing balance of branch liabilities) 13. To record profits or loss : If Profit: Brach account Dr. XXXX General Profit and Loss A/C Cr. XXXX If Loss: General Profit and Loss A/C Dr. XXXX Branch Account Cr. XXXX 2015-2016