INTRODUCTION : • In order to increase the sales , business houses are required to market their products over a larger territory and may generally split their business into certain divisions or parts . If the various parts are located in different parts of the city , different cities or in different countries like germany , australia etc , these are known as branches . Head office controls the activities of various branches .
OBJECTIVES OF BRANCH ACCOUNTING : • The main object of keeping branch accounts is dependent on the nature of business and specific need of a particular branch. • To know the profit or loss of each branch . • To ascertain financial position of each branch on a particular date. • To know the cash and goods requirement of the various branches. • To evaluate the progress and performance of each branch .
The transaction between headquarters and branch offices The type of current transactions between headquarters and branch The establishment of new branchesTransfer between headquarters and branch stock in trade Different types of transactions under the account settings When setting up a new set of branches between the subjectsHeadquarters set up "branch exchange"Branches set up "between the headquarters” Transfer between headquarters and branch stock in tradeHeadquarters set up "branches Stock delivered"Branches set up "headquarters shipped inventory." 4
To calculate commission for payment to the managers if based on profits of branch . • To know the profitability of each branch and type of business for expansion of the business . • To give concrete suggestions for the improvement in the working of various branches . • To meet the requirements of specific enactments as all branches of a company must keep the accounts for audit purposes .
TYPES OF BRANCHES : • (A) . Branches not keeping full system of accounting (dependent branches) . • (B) . Branches keeping full system of accounting (independent branches) . • (C) . Foreign branches . • Features of dependent branches are : • Such branches sell only those goods which are received from the head office and are not usually allowed to make purchases in the open market .
Goods are supplied by the head office to such branches either at cost price or at invoice price . • All expenses of the branch such as rent , salary or staff , advertisement etc are paid by the head office. • Petty expenses such as cartage , entertainments etc are paid out of petty cash book balance . • The amount received from cash sales or cash received from debtors is either remitted to the head office daily or deposited in the account of head office at some local bank . • The branch manager is normally expected to sell the goods for cash only but he may be authorized to sell goods on credit in certain cases . • Such branches do not maintain their own books of account . All records are maintained by the head office .
Goods in Transit (GIT) • Goods were sent by the Head Office before the end of the financial period, but received by the branch after the end of the financial period • GIT =Goods Sent to Branch – Goods received from HO
Remittances/Cash in Transit (CIT) • The remittance or cash was remitted by the branch before the end of the financial period, but was received by the Head office after the end of the financial period • CIT= Remittance to Head Office – Remittance from Branch
Accounting treatment of the new branch accounting treatment Headquarters accountBetween branches Branch accountHeadquarters contacts 15 000 15 000 10
The treatment ofHeadquarters transfering goods to the branch Headquarters account Transction between branches Delivery of branch inventory 8 000 8 000 11
Branch account transported to the headquarter headquarters contacts 8 000 8 000 12
ACCOUNTING RECORDS FOR HEAD OFFICE OR SYSTEM OF ACCOUNTING FOR BRANCH • (1) . DEBTORS SYSTEM (synthetic method) . • (2) . FINAL ACCOUNT SYSTEM . • (3) . STOCK AND DEBTORS SYSTEM (analytical method) . • (4) . WHOLESALE BRANCH SYSTEM .
(1) .DEBTORS SYSTEM : • This system is adopted generally in those branches which are fairly small in size . Under this system , head office opens a separate account for each branch in order to record all transactions relating to that branch . This account is a nominal account in nature and is prepared to calculate profit and loss for each branch . Goods supplied by the branch may be either at cost price or at cost plus profit . The main defect in this method is that it does not provide full information for analysis of branch profit and loss .
ILLUSTRATION • Invoicing goods to branch at cost . • From the following particulars relating to delhi branch for the year ending 31st march 2012 , prepare necessary accounts in the head office books : • Balances as on 1-4-2011 : • Stock at branch = 15000 • Debtors at branch = 30000 • Petty cash at branch = 300 • Goods sent to branch during the year = 252000 • Remittance from the branch :
For cash sales = 60000 • Received from debtors = 210000 • Total = 270000 • Goods returned by the branch = 2000 • Credit sales during 2011-2012 = 228000 • Cheques sent to branch during the year : • For salaries = 9000 • For rent & taxes = 1500 • For petty cash = 1100 • Total = 11600 • Balances as on 31-3-2012 • Stock at branch = 25000 • Petty cash = 200 • Debtors = 48000
BRANCH DEBTORS A/C BRANCH STOCK A/C :
INVOICING PRICE METHOD • ILLUSTRATION • Unique stores ltd. has an old established branch at Kanpur . Goods are invoiced to branch at 20% profit on invoice price. All expenses are paid by head office except petty expenses. • Stock on 1-1-2011(invoice price) = 15000 • Sundry debtors = 9000 • Cash in hand = 400 • Office furniture = 1200 • Goods supplied by head office (invoice price) : • Goods returned to head office = 1000
Goods returned by debtors = 480 • Debtors at the end = 8220 • Cash sales = 50000 • Credit sales = 30000 • Discount allowed = 300 • Expenses paid by head office : • Rent = 1200 • Salary = 2400 • Stationery and printing = 300 • Petty expenses paid by branch manager = 280 • Stock on 31-12-2011 (invoice price) = 14000 • Provide depreciation on furniture @10% .
DEBTORS ACCOUNT : • Working note - 1 : • Calculation of cash received from debtors .
(2). FINAL ACCOUNT SYSTEM : • According to this system , the profit and loss made by the branch is determined by preparing branch trading and profit & loss a/c at cost price . It should be carefully noted that all expenses whether paid by the head office or by the branch are debited to trading and profit & loss a/c prepared for the branch . • Illustration • A Delhi merchant has a branch at Chennai to which he charges the goods at cost plus 25% . The branch keeps its own sales ledger and remits all cash received to the head office everyday .
Stock 1-1-2011 at invoice price = 11000 • Debtors = 100 • Petty cash = 100 • Cash sales = 2650 • Goods sent to branch at invoice price = 20000 • Collection on ledger accounts = 21000 • Goods returned to head office at invoice price = 300 • Bad debts = 300 • Allowances to customers = 250 • Return inwards = 500 • Cheques sent to branch :
BRANCH TRADING & PROFIT & LOSS Account for the year ending 31-12-2011 Rent = 600 Salary & other expenses = 900 Wages = 200 Stock 31-12-2011 at invoice price = 13000 Debtors = 2000 Petty cash (including) : Misc. income = 25 Not remitted = 125
(3). STOCK AND DEBTORS SYSTEM : • There is yet another method of calculating profit and loss of a branch which is popularly known as (stock & debtors system) or (analytical method) . It is an elaborate method of keeping branch accounts and is considered very useful where the branch turnover is sufficiently large and where a greater degree of control is sought to be exercised by the head office over the branch . • (a) . Goods charged to branch at cost price . • ILLUSTRATION
Stock 1-1-2011 = 15000 • Stock 31-12-2011 = 14000 • Debtors 1-1-2011 = 25000 • Debtors 31-12-2011 = 35000 • Cash at branch 1-1-2011 = 500 • Cash sent to branch = 1500 • Goods sent to branch = 50000 • Goods returned by branch = 500 • Cash sales = 32000 • Credit sales = 58000 • Allowances to customers = 300 • Returns from customers = 600
BRANCH STOCK ACCOUNT : • Bad debts written off = 500 • Discount allowed to customers = 2000 • Remittance from branch = 70000 • Rent & taxes = 1500 • Salaries = 5000 • General trade charges = 1500 • Normal loss of goods due to wastage = 1000 • Abnormal loss of goods due to pilferage = 2000
GOODS SENT TO BRANCH ACCOUNT : BRANCH EXPENSES ACCOUNT :
(b) . Goods charged to branch at selling price : • ILLUSTRATION • Crown industries has a branch at Madurai to which goods are invoiced at cost plus 25% . Branch expenses are paid direct from head office and the branch remits all cash to head office . • Goods received from head office at invoice price= 60000 • Returns to head office at invoice price = 1200 • Branch stock on 1-1-2011 at invoice price = 6000 • Cash sales = 20000 • Credit sales = 36000 • Branch debtors on 1-1-2011 = 7200
BRANCH STOCK ACCOUNT : • Cash collected from debtors = 32000 • Discount allowed to debtors = 600 • Bad debts in the year = 400 • Goods returned by debtors to branch = 800 • Rent , rates and taxes at branch = 1800 • Branch office expenses = 600 • Branch stock at invoice price on 31-12-2011 = 12000
BRANCH EXPENSES ACCOUNT : BRANCH ADJUSTMENT ACCOUNT :
BRANCH PROFIT & LOSS ACCOUNT : (c) . Goods sent to branch at cost plus certain fixed percentage on cost : Goods supplied by the head office to the branch may be invoiced at cost plus a fixed percentage of profit on cost . Here too , the ‘load’ included in the value of opening stock , closing stock and goods sent to branch minus the returns from branch to
head office is treated in the same way as in the case of branch , where the goods are supplied by the head office at selling price . • ILLUSTRATION • M/s brute ltd . invoices goods to their various branches at cost plus 25% . Branches sell the goods for both cash and credit . Branch expenses are paid by the head office . • Branch stock at i.p. on 1-1-2011 = 8000 • Branch debtors = 4000 • Branch petty cash = 500 • Branch furniture = 6000
Goods invoiced to branch during 2011 = 22000 • Cheques sent to branch during 2011 : • Salaries = 2000 • Rent = 1000 • Petty cash = 300 • Cash sales by branch = 10000 • Cash collected from debtors by branch = 9000 • Goods returned by branch = 800 • Credit sales by branch = 25000 • Goods returned by branch debtors to branch = 400 • Discount allowed to debtors = 500
BRANCH STOCK ACCOUNT : • Bad debts = 100 • Branch stock at invoice priceon 31-12-2011 = 10000 • Branch petty cash = 200 • Furniture is to be depreciated at 10% .
BRANCH DEBTORS ACCOUNT : BRANCH ADJUSTMENT ACCOUNT :