Branch Accounting
Definition of 'Branch Accounting'
An accounting system in which separate accounts are maintained for each branch of a corporate entity or organization. The primary objectives of branch accounting are better accountability and control, since profitability and efficiency can be closely tracked at the branch level.
Large manufacturing and trading concerns operate at different places in the same country as well as in foreign countries through their own establishments for promoting sales and eliminating middlemen. The system of operating at several places through one's own establishments is called 'branch organisation'.
The parent or the main establishment located at the main place of activity and which exercises control over the other establishments is called the Head Office, and the subsidiary establishments located at various places are called the Branches.
Need for Branch Accounting :
A concern which has branches is always interested in knowing the final results (i.e., the profits or losses) of its branches. (if the final results of the branches are good, they may be allowed to operate. If not, either some improvements will be made in their working or they will be closed down.) So, naturally, a suitable accounting system capable of indicating the final results of the branches is required to be adopted by a branch organisation.
Objectives of Branch Accounting :
The following are the main objects of maintaining branch accounts:
(i) Profit or loss of each branch can be found out
(ii) They help in controlling branches
(iii) Actual financial position of the business can be found out on the basis of head office and branch accounting periods.
(iv) Branch requirements of goods and cash can be estimated
(v) Suggestions for increasing the efficiency of the branch can be sent on the basis of branch accounts.
(vi) They help in complying with the requirements of law because act to companies
.
Branch Accounting Procedure :
The branch accounting procedure to be adopted by a concern depends upon the size of the branches, the nature of the goods dealt in by them, degree of control desired to be exercised on them and the country in which the branches are located. Therefore, for the purpose of understanding the accounting procedure to be adopted for the branches. branches may be divided into three categories. They are "
1. Dependent Branches
2. Independent Branches
3. Foreign Branches
(1) Dependent Branch
The term ‘Dependent Branch’ means a branch which does not maintain its own set of books. All records have to be maintained by the head office. When the business policies and the administration of a branch are wholly controlled by the head office, its accounts also are maintained by it.
In such a case, Branch accounts are written up at the head office out of reports and returns received from the branch.
ACCOUNTING IN RESPECT OF DEPENDENT BRANCHES
In case of a dependent branch, the head office may keep accounts of the branch acc to any of the following systems
In case of a dependent branch, the head office may keep accounts of the branch acc to any of the following systems
(1) Debtors System
(2) Stock and Debtors system
(3) Wholesale System
(4) Final Account system
(1) Debtors System (Synthetic Method)
This system is adopted in case of branches of small size. Under this system, a branch account is opened separately for each branch in the books of head office. This account is nominal account in nature. The opening balance of stock, debtors (if any), petty cash are debited to the branch account.
(2) STOCK AND DEBTORS SYSTEM
Profit and loss of a branch can be found out by preparing branch account but there is another method for the same purpose. This method is known as stock and debtors method. If it is desired to exercise a more detailed account control over the working of a branch, the accounts of the branch are maintained under which is described as the stock and debtors method.
Manufacturers may sell goods to the consumers either through the wholesalers and approved stockists or through their branches. In order to know whether self-retailing through branch is more profitable than wholesaling, it is necessary to make distinction between profit due to wholesale and profit due to retail business of the branch.Wholesale price is always less than retail price.
(4) Final Accounts System
The head office can also ascertain the profit or loss of a dependent branch by preparing branch trading and profit and loss a/c at cost. In such cases, the head office may also maintain a branch account.
