Lecture on branch accounting , part -1

By : Dr. Nandini NarayanAssistant Professor, G.J. College,PPU

Branch accountsType of Branch:

1. Independent branch2. Dependent branch3. Foreign branch 4. Misc wholesale branch

Important points to note:• Branch is considered as independent if it has own set of books of account.

• Whereas branches which do not maintained its own books of account are called dependent branch

• In case of independent branch ,branch is considered as separate entity and head office considered another separate entity for the purpose of accounting only.

Journal entries In head office book In branch book

1) good purchased by HO. Purchase account DR.To cash/creditor

No entry

2) good purchase by branch. No entry Purchase account DR.To cash/creditor

3) rent paid by branch. No entry Rent a/c DR.To cash

4) goods transfer to branch Br. a/c DR.To good sent to branch

Goods received from HO DR.To HO

5) asset purchase by head office

Asset a/c DR.to bank

No entry

SET OF JOURNAL ENTRIES IN BOOKS OF HEAD OFFICE(HO) & BRANCH

Incorporation of Branch Accounts in Final Accounts

Following steps are applied for incorporation of final accounts of independent branch.• Step one reconcile Head office and branches balance in respective book.

Entry should be generalized where reconciliation is requiredGenerally reconciliation is required forA goods in transit or cash in transit

• Step two prepare final account in books of branch after effect of reconciliation.

Note: closing stock may be missing, for which stock account has to be prepared at cost to branch.

Stock a\c (at cost to branch)

Particulars Amount Particulars Amount

To bal b/d By sale

To goods received from HO

By shortage(at cost)

By bal c/d

total total

Step 3 Prepare trading account and profit and loss account for head office after considering effect of reconciliation.

# note closing stock may be missing for which stock account should be prepared at cost to head office

step 4 prepare consolidated balance sheet of head office and branch for this purpose following entries are journalised.Books of head office.

step 4 Prepare consolidated balance sheet of head office and branch. For this purpose following entries are journalised in the Books of head office.

For abridged incorporation

1) Sundry asset DR.to branch

2) Branch a/c DR.to Branch liability

3) Branch a/c DR. to general p/l a/c

For detailed incorporation• In case of full incorporation third entry is not required instead income

and expense are incorporated .• Note in next year head office and branch apply reverse incorporation• Note if there is any closing stock or good in transit which are at

invoice price then unrealized profit is eliminated. 1) P&L a/c DR.

To provision for unrealized profit• 2) provision is cancelled next year

provision for unrealized profit debitTo profit and loss a/c

These entries are generalised by head office only

Note : sometimes for increasing control over branches fixed asset are given to branches but its account are maintained by head office in such case depreciation is charged as follows:

H O Branch.Branch account DR.

to Head OfficeDepreciation account DR.

to fixed asset

H O Branch.branch account dr

to cash Expense a/c dr

to Head Office

Sometimes head office Makes expenses for Branch