Branch Accounting

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 Meaning Of Branch Accounting
• Branch accounting is a bookkeeping system in which separate accounts are maintained for
each branch or operating location of an organization. Typically found in geographically
dispersed corporations, multinationals and chain operators, it allows for greater
transparency in the transactions, cash flows and overall financial position and performance
of each branch.
• Branch accounts can also refer to records individually produced to show the performance
of different locations, with the accounting records actually maintained at the corporate
headquarters. But the term usually refers to branches keeping their own books and later
sending them into the head office to be combined with those of other units.
 Objectives Of Branch Accounting
• To measure the efficiency of Branch. Branch accounting act as a barometer of measuring the
efficiency of a branch. It tells about the weaknesses and the plus points of a branch.
• To Compute the profit or loss. Branch account helps in finding out the profit or loss of a branch.
Sometimes, Branch Trading and Profit and loss a/c is prepared to calculate profit or loss of a
branch.
• To ascertain the financial position. The Balance sheet explain the financial position of a branch,
as it records assets and liabilities.
• To fulfill legal requirements. The preparation of branch account is necessary to fulfill the
requirements of different acts or laws.
 Types Of Branches & Methods Of
Accounting
• Dependent Branches • Independent Branches
1. Debtors System - Cost Price 1. Foreign Branches
Method - Invoice Price Method 2. Home Branches
2. Final Accounts System i. Incorporation of Branch
3. Stock and Debtors System ii. Trial Balance in H.O. Books
4. Wholesale Branch System Method I ( Detailed Method )
Method II ( Abridged Method )
 Independent Branch
• When the size of the branches is very large, their functions become complex. In such a situation, it
is desirable or practicable for each branch to establish its own double entry book-keeping system
quite separate from those of head office, under this system of branch accounting, the branches, are
treated as separate, independent units. These types of branches are known as Independent Branches.
• This type of branch records all the transactions in its own books, extracts its own trial balance and
prepares its own Trading and Profit and Loss Account. A copy of the trial balance so prepared will
be forwarded to the head office and the head office will incorporate the same in its books of
accounts so that consolidated Profit and Loss Account and a Balance Sheet can be prepared for the
business as a whole.
 Features Of Independent Branches
• Independent Trading:- Independent branches are authorized to independent trading. These branches make purchases at its
own and make sales.
• Own Set Of Books Are Maintained:- The independent branches make their own set of books. The books are kept on the
double entry system. The journal, ledger, subsidiary books are maintained of each branch separately. At the end of the year,
only the trial balance prepared is sent to the head office to make the consolidated accounts of whole business.
• Maintenance Of Branch Account:- In case of Independent Branches, the branch account is opened. This account is debited
with the cash or goods sent to branch. It will get credit when cash is received by the head office from the branch. It is
maintained like personal account and it indicates the amount due by the branch to the head office.
• Maintenance Of Head Office Account:- In the books of the branch, the ‘Head Office Account’. This account is debited with
the amount remitted by the branch to the head office and get credited in respect of goods received by the branch from the head
office, cash received and expenses paid by the head office on behalf of the branch. This account appears as the liability in the
branch balance sheet.
 Dependent Branches
• When the policies and administration of a branch are
totally controlled by the head office, who also
maintains its accounts, the branch is called a
dependent branch. 
 Features Of Dependent Branches
• Does Not Maintain Own Set Of Books:- The dependent branch does not maintain its own set of books. The Head Office
maintains a record of all the transactions. The branch only maintains a Debtor’s Ledger and a Stock Ledger. The Debtor’s ledger
is maintained to find out the money due from debtors of the branch is authorized to sell goods on credit. The stock ledger is
maintained to get information regarding the movement of the goods received from the head office and the balance of stock in
hand.
• Supply Of Goods From Head Office Only:- Generally, all the goods are supplied to the branch by the Head Office. Sometimes
the branch may be allowed to make purchases from the local parties for which the payment is made by the Head Office directly.
• Maintenance Of Petty Cash Book:- The branch is authorized to make a petty cash book either a simple book or on imprest
system. For this, the cash is supplied by the head office periodically.
• Remittances Of Expenses:- All the expenses of the branch are directly financed by the Head Office through cheques or cash.
The branch submits the summary to the head office for payments to be made by it during a particular period in respect of Branch
expenses.
 Difference Between Dependent And
Independent Branch
Dependent Branches Independent Branches
• It does not keep its own books of accounts. • It maintains its own books of accounts.
• It is not allowed to make purchase. • Besides receiving goods from H.O., it
Generally all goods are supplied by H.O. makes, its own purchases.
• Generally, it is of small size. • Generally, it is of larger size.
• It opens bank accounts in the name of Head • It can operate its own bank account.
office. • It deposits money in its own bank a/c and
• Cash collected is either deposited in the may remit it to head office from time to
head office a/c or remitted to head office. time.