B.COM 1ST SEMESTER, INLAND BRANCH ACCOUNT
AS PER NEW SYLLABUS
Q.1.
What Is Branch Accounting? What are its objectives?
Ans:- 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.
The
followings are the Objectives of Branch Accounting
1. To know the profit or loss of each branch separately.
2. To ascertain the financial position of each branch on a particular
date.
3. To know the cash and goods requirement of the various branches.
4. To evaluate the progress and performance of each branch.
5. To calculate commission for payment to the managers, if based on
profit of branch.
6. To know the profitability of each branch and type of business for
expansion of the business.
7. To give concrete suggestions for the improvement in the working of
the various branches.
8. To meet the requirement of specific enactments as all branches of
a company must keep the account for audit purpose.
Q.2. What are the advantages
and disadvantages of branch accounting?
Ans:- The following are the
advantages and disadvantages of branch accounting:-
Advantages of Branch
Accounting
a.
It helps to ascertain the Profit & Loss of each Branch
b.
It helps to know the debtors,
Inventory and cash position of each branch
c.
It helps to ascertain the wages,
Rent, Salary and other expenses of each branch separately.
d.
Separate accounting of each branch
helps to take decisions according to branch requirements.
e.
By Separate branch accounting, it
is easy to track the progress and performance of each branch.
f.
It helps to control the overall
branch operation.
Disadvantages of Branch Accounting
a.
Due to a separate account for each branch, it requires more
manpower.
b.
It requires a separate branch
manager for each branch
c.
It requires separate
infrastructure at each location or unit
d.
It increases the expenses of the
company because of a separate set up at each location.
e.
In this accounting system, there
is a chance of delay in decision making because of multiple authority.
f.
In this
accounting system, there is a chance of Mismanagement because of decentralized
operation and minimum control of the Head office.
Q.3. What are
the types of Branch?
The branch
may be following three types
a)
Dependent
Branch
b)
Independent
Branch
c) Foreign Branch
a.
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. Head Office maintains and opens a Branch Account
in its book in order to find out the result of the operation. Branches supply
some related information to the Head Office, i.e., position of cash, debtors
stocks, etc.
features
of dependent branches.
i.
Branches, generally, depend on the head office for the goods and
cash to transact.
ii.
The head office may send the goods to branch at cost price or
invoice price.
iii.
The branch expenses are paid directly by the head office.
iv.
Only petty expenses are allowed to be paid by the branch manager
out of imprest
v.
Cash maintained at the branch.
Thus,
the head office may keep accounts of the branch according to any of the following
methods:
1)
Debtors
System
2)
Stock and
Debtors system
3)
Wholesale
System
4) Final Account system
1. Debtors
System:- This system also called synthetic method is adopted generally in
those branches which are fairly small in size. Under this system, the head
office opens a separate account for each branch in order to record all
transactions relating to the branch. This account is a nominal account in
nature and is prepared to calculate profit and loss for each branch. The goods
supplied by the head office to the branch may be either at cost price or at
cost plus profit.
2.
Stock and Debtors System:- There is yet another method of calculating profit and loss of a
branch which is popularly known as ‘stock and 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 y the head office over the branch.
3.
Wholesale Branch System:- In this system the goods are sold through either by wholesales
price or either by stockiest. The manufacturer knows the profit or position of
business activities it is prepared to profit and loss and balance sheet.
4.
Final Accounts System:- According to this system, the profit or loss
made by the branch is determined y preparing branch Trading and profit and loss
account at cost price. It should be carefully noted that all expenses (direct
and indirect) whether paid b the head office or by the branch are debited to
the trading and profit and loss account prepared for the branch.
The following are the treatment of
certain Branch transactions in case of dependent branch:-
1. Branch Expenses paid by the branch out of Petty Cash. If the petty cash is not maintained on
imprest system such expenses will be deducted from the branch cash and at the
close reduced balance of cash will be shown on the credit side of the branch
account. Such expenses need not be shown in the branch account. If such
expenses are re-imbursed by the head office to the branch (if the petty cash is
maintained on imprest system), then these must be debited to the branch account.
However, same opening and closing balances of petty cash will be shown on the
debit and credit side respectively of the branch account.
2. Depreciation of Fixed assets. This is not shown in the branch
account. But the closing balance of the fixed assets will be shown on the
credit side of the branch account after deduction of the amount of
depreciation.
3. Credit sales, bad debts, sales returns, allowances, and discount allowed
pertaining to branch. These items are pertaining to debtors account
and will not be shown in the branch account. However, these items will be taken
into consideration while ascertaining the amount of opening or closing balance
of debtors or amount received from debtors who are shown in the branch account.
4. Goods in transit. Goods in transit is the difference between goods sent by head office
and received by the branch. Such goods will be shown either on the both sides
of the branch account or will be ignored totally while preparing the branch
account.
5. Purchase of fixed asset by the branch.
If the branch has purchased any fixed assets, then on one hand branch
account will be credited by the head office and on the other the remittance
from the branch will be reduced by the amount. If branch has purchased the
asset on credit basis and liability arising from such purchase will be shown on
the debit side of branch account.
6. Sale of Fixed Asset. If the sale is for cash, cash remittance will increase from the branch
but asset will reduce in value to be shown on the credit side of the branch
account as this is automatically adjusted through the above adjustments.
b.
Independent Branch:- These are the branches which are not
depending on the head office for the goods or cash requirement. An independent
branch maintains complete set of books of accounts separately. At the end of
the year, the branch prepares branch trading account, profit and loss account
and balance sheet
The main features of
independent branches.
i.
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.
ii.
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.
iii.
There may be inter-branch transactions. That is, goods transferred
by one Branch to another Branch of the same Head Office. Such entries have been
explained later.
iv.
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).
c) Foreign
Branch:-
These are similar to independent branches. Foreign branches are the branches
established in the countries other than the country where the head
office is located. The branches prepare the books of accounts in foreign
country’s currency and equal to the features of independent branches.
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