BRANCH ACCOUNTS NOTES

1. DR KUMAR J
ASSOCIATE PROFESSOR
ACCOUNTING FOR BUSINESS.II
BRANCH ACCOUNT

2. Meaning of Branch Accounting
Branch accounting is a double-entry bookkeeping
technique which is used by a business or organisation
to maintain separate accounts for each operating
location or branch. Its goal is to optimise transparency
and cash flow and analyse each branch’s performance
and financial standing. In a branch accounting system,
branches create separate balance sheets, trial
balances and profit and loss account statements.

3. Balance accounts are typically found in
multinational organisations,
geographically dispersed companies and
chain operators. However, after keeping
their own books, the branches send them
to their head office to combine them with
other units.

4. Types of Branch Accounting
There are four types of branch accounting which are
as follows:
1. Dependent Branch
These branches do not maintain their own set of
books. The head office collectively manages its
profit and loss along with the balance sheet. The
separate branches provide only a few pieces of
information like inventory, cash accounting and
debtor accounting.

5. The head office manages the branch
accounts using any of the following
methods:
•Debtor system
•Stock and debtors method
•Wholesale branches method
•Final accounting method

6. 2. Independent Branch
An independent branch maintains its own
books, whether it is an overseas branch or a
domestic branch. The technique for calculating
the branch accounts is similar in both cases
except when it is located in a foreign country.
The trial balance received in a foreign currency
will be converted to the currency of the country
where the head office is located.

7. 3. Foreign Branch
The accounting process is similar to that of
a home branch. However, in this case,
converting the trial account balance to the
home currency is a must. Entries will be
issued for transit goods and transit cash
after reviewing the trial balance receipt.

8. 4. Home Branch
Home branches have complete control over
their books. They can devise their own trial
balances and final accounts and later
forward the copies of these accounts and
balances to the head office to include them
in their books. Therefore, an account is
present in the records of the head office that
is similar to the individual account.

9. Advantages of Branch Accounting
Here are some of the advantages of branch
accounting:
•It helps in understanding the profit and loss
borne by every branch.
•Helps in understanding the rent, salary,
wages and expenses of each branch
individually.

10. •Guides in understanding the cash position and
debtor’s inventory of every branch.
•Analysing the performance and progress of each
branch.
•Decision-making becomes easier after analysing
the branch’s performance.
•It helps in the proper operation of the branches.

11. Disadvantages of Branch Accounting
Mentioned below are some of the disadvantages of
branch accounting:
•It involves extra cost and workforce.
•Branch accounting requires a separate manager for
every branch, and this can, in turn, lead to
mismanagement.

12. It might lead to delays in decision-making
due to the requirement for extra staff.
Requires extra infrastructure at each
location.
•Converting the trial balance of every foreign
branch might not always be possible on
time.

13. Features of Dependent Branches
1) Dependent branches mainly sell goods which are
supplied by the head office for cash and also on
credit to approved customers if authorized to do
so by the head office.
2) 2) Generally, cash collected is deposited into a
local bank to the credit of the head office.
3) 3) All expenses of regular nature are paid directly
by the head office

14. . 4) For meeting petty expenses, the branch manager is
provided with cash, which is reimbursed by H.O. from
time to time on an imprest system.
5) Such Branches do not maintain accounts books for
ascertainment of profit/loss. But in order to supply the
requisite information to the head office, some
memorandum records such as, cash books; stock
register, sales book etc. are maintained.

15. Independent Branch: Independent branches are those
which maintain complete system of accounting. This
particularly happens when their sizes are very large due
to various functional complexities. In short, they prepare
their accounts independently, i.e., they also purchase
and sell goods for cash and credit independently in
addition to the goods that are supplied by the Head
Office.

16. They may supply goods to Head Office, pay
expenses and deposit cash in their own
account like an independent unit. Thus, they
maintain their own accounts under Double
Account System. That is why they are called
Independent Branch. Procedure for
Maintaining Accounts of an Independent
Branch!

17. Characteristics of an Independent Branch:
1.Independent Branch keeps a complete set of
books. Such Branch gets goods from Head
Office and from outside parties. It has its own
Bank Account. Thus, the Branch keeps frill
system of accounting.
2.2. It prepares its own Trial Balance, Trading and
Profit and Loss Account and Balance Sheet.
Copies of these statements are sent to Head
Office for incorporating in the Head Office Books.

18. 3. The books contain an Account called “Head
Office Account” or “Head Office Current
Account” which is credited with everything
received from the Head Office and debited with
everything sent to Head Office. That is, all
transactions relating to Head Office are
recorded in this Account. The Head Office
Current Account is thus a Proprietorship
Account (i.e. Capital Account).