Branch Accounting

Presented By By:: Bilal Yasir M.Rahat Javaid Razi-ud-din Zuhaib Farooq Asad Sattar Ateeq Taj Noree n Malik Uswah Tahir Ayesha Ayesh a Tahi ahir r

Branch Accounting

Branch Accounting

Branch Accounting vBranch

is not a separate legal entity; it is simply a segment of business.

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vIn

order to exercise great control over the branches it is necessary to ascertain profit or loss made by such branches separately.

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vThe

head office and branch keep

Need for Branch Accounting vAscertain

profit of each branch separately vAscertain the financial position of each branch vAsses the progress and performance of each branches. vFulfill the audit requirement under companies ordinance 1984. vAscertain the quantity of stock held by each branch at the end

Types of Branches

Type ypes s of Dep Depend endent ent Branches

Goods transferred From Head office at cost

Wholesale price

Goods transferred From head office at loaded (invoice) price

Accounting arrangement of Retail Dependent Branches

vThe

Accounting arrangement of a branch depends upon its size, the type of activities, the method of operation and degree of control to be exercised by head office. vThe Main methods of accounting for branch transaction are: 1.Debtors System 2.Stock and Debtor system


vDebtor

system

vThis

system of accounting is suitable for the small size branches. Under this a branch account is opened for each branch in the head office ledger. vHead office may send goods to branch at either at cost price or selling price.

1.Cost price method 2.Selling price method (Invoice price)


1.Cost price method: •

•

Under this method at the beginning of the year branch account is debited with the opening balance of assets such as stock (at cost), debtors, petty cash, furniture, prepaid expenses, accrued income, lying with the branch. Similarly, it is credited with the opening balances of liabilities of the branch such as creditors, outstanding salaries, rent.

Branch Account Dr. Branch Assets Account (Individual) Journal Branchentry: Liabilities Account (Individual) Dr. Branch Account 

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Accounting arrangement of Retail Dependent Branches 

In the books of Head office Branch Account 

Date

Particulars

Jan. 1

Branch b/d Stock Debtors Petty Cash Furniture Prepaid expenses

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Rs

Date

Particulars

Jan.1

Balance b/d Creditors Outstanding Salaries

Rs


1.Cost price method:

• Branch Accounting is then debited with the amount of goods sent to the branch (at cost) and other amount remitted to meet various expenses such as, salaries rent and taxes etc. • Branch account is credited with the return of goods (at cost) by the branch and receipts from debtors and cash sales. • At the year end, branch account is debited with the closing values of liabilities and credited with the closing values of assets.


1.Cost price method: Journal entries 

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For goods sent to branch: BranchAccount Goods sent to Branch Account

Dr.



Date

Particulars

Jan. 1


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Rs

Date

Particulars

Jan.1


Rs



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For goods sent to branch: BranchAccount Dr. Goods sentoftoCash/cheque Branch Account For remittance to branch for expenses e.g Salaries, rent, petty expenses Branch Account Dr. Cash/bank Account



Date

Particulars

Jan. 1


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Rs

Date

Particulars

Jan.1


Rs



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For goods sent to branch: BranchAccount Dr. Goods sent to Account For remittance of Branch Cash/cheque to branch for expenses e.g Salaries, rent, petty expenses

Branch Account Dr. For cash/cheque received from branch (Cash sales plus Cash/bank Account collection from debts) Cash/Bank Account Dr. Branch Account



Date

Particulars

Jan. 1


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Rs

Date

Particulars

Jan.1


Rs



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For goods sent to branch: BranchAccount Dr. Goods sent to Account For remittance of Branch Cash/cheque to branch for expenses e.g Salaries, rent, petty expenses

Branch Account Dr. For cash/cheque received from branch (Cash sales plus Cash/bank Account collection from debts) Cash/Bank Dr. For closingAccount balance of assets at the branch: Branch B ra n c h AAccount ss e t A / c D r. B ra n c h A c c o u n t



Date

Particulars

Jan. 1


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Rs

Date

Particulars

Jan.1


Stock Debtors Petty Cash Furniture Prepaid expenses

Rs



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For Closing balances of liabilities at the branch: Branch Account Dr. Liabilities account (Individual) For transferring profit and loss; if profit Branch Account Dr. To General Profit and loss A/c For transferring profit and loss; if loss General profit and loss Account Dr. To Branchbe Account It should noted that the closing balances of branch asset and liabilities are shown in balance sheet



Date

Particulars

Jan. 1


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Rs

Date

Particulars

Jan.1


Stock Debtors Petty Cash Furniture Prepaid expenses General Profit and loss A/c (Loss)

Rs



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For Abnormal loss: Abnormal loss account Dr. (Total) Branch Account Generalprofit and loss Account Dr. (Loss) Insurance claim Account Dr. (Claim) Abnormal loss Account

Accounting arrangement of Retail Dependent Branches Illustration A ltd had a branch office at Sialkot. The following were the transactions took place between Head office and its branch office for the year ending 31 December 2009.

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Branch openingStock 1.1.2009 Goods sent to Branch Goods sent to branch for expenses: Cash sent to Head office Salaries, Telephone, Branch stRent, ock on 31.12.2009Petty Cash Branch cash balance 

3000 67000 4950 79000 8000 100

Accounting arrangement of Retail Dependent In theBranches books of Head office 

Sialkot branch Account For the year ended 31 Dec. 2009 

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Particulars

Opening Stock Goods sent to branch Cash for salaries Cash for rent Cash for telephone Cash for petty cash

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Rs

Particulars

3,000 Cash (from 67,000 branch) Closing balances stock Closing balance 4,950 cash

79,00 0 8,000 100

12150

General profit and 87,100 Loss (Net profit) 87,1

87,10


2. Invoice Price Method

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• It is the method of sending goods to its branches at sale price. • • Methods of selling goods at invoice price is excellent from the point of view of stock control. • • Goods may be invoiced at selling price to keep the margin of profit a secret from the branch manager.


2. Invoice Price Method • Journal Entries

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1. 

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For loading on opening stock Stock reserve Account Branch Account B ra n c h A c c o u n t

Dr. D r.

G o o d s se s e n t to b ra n c h a c co co u n t

For return of goods Goodssent to branch account Dr. Branch Account For loading (Net) on goods sent to branch Goods sent to branch Dr. Branch Account



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1. 

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For loading on Closing Stock Branch Account Dr. Stock Reserve Account For transferring profit and loss; if profit Branch Account Dr. General profit and loss account For transferring profit and loss ; if loss General profitand loss Dr. Branch Account Rest of the entries are same as of cost price method.



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For Abnormal loss Abnormal loss Dr.(Invoice price) Branch Account Branch Account Dr. (Loading on abnormal loss) Abnormal loss Bank Account Dr. (Insurance claim received) Generalprofit and loss account Dr. (Loss) Abnormal loss Account 

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1. 

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Accounting arrangement of Retail Dependent Branches 2. Invoice Price Method

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Illustration

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The Naveed Stores ltd, Multan has a branch at hyderabad. Goods are invoiced to the branch at a selling price, being cost plus 25%. The branch keeps its own sales ledger and deposits all cash received daily to the credit of the head office account opened at the MCB, Hyderabad. All expenses are paid by cheque Stocfrom k on onmultan. 1. 1.1.01 30,0000 Cash sales for the 1,29,600

Stock on 31.12.01debtors Sundry

36,000 16,800

1.1.01 debtors 21,600 Sundry 31.12.01 Goods invoiced 2,18,400 from H.O Rent, rates and 9,600 taxes Sundry Sundry Expens Expenses es 1920

year sales Credit Cash received from the debtors Wages paid

84,000 79,200 8,960

Accounting arrangement of Retail Dependent Branches Books of Naveed Stores Ltd. 

Hyderabad Branch A/c For the year ended 31 Dec. 2001 

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Particulars

Rs

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Date

Particulars

01.01. Balances 31.12. Cash—sales 30,000 01 01 Stock Cash--16800 Debtors debtors Goods sent to Balances: 2,18,400 branches Stock Cash----Expenses 9,600 Debtors Rent, rates and Goods sent to taxes 1,920 branches Sundry expenses 8,960 (218400*1/5) Wages 3,16,080 7200 Stock reserve Stock reserve 23200

129600 19200 36000 21600

43680 6000 3,16,080

Accounting arrangement of Retail Dependent Branches  

2. Stock and Debtor System Stock and debtor system is generally used when the goods are sent to the branches at an invoice price and the size of the branch is large.

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These accounts usually are

i. Bran Branch ch Stoc Stock k Acco Accoun unt; t; ii. Branch Branch Debtor Debtor Account Account iii.Goods sent to branch account iv. iv. Branch Branch adjustment account v. Branc Branch h cas cash h acc accoun ountt vi. Branch Branch Expense Account Account vii.Branch Profit and loss Account viii.Branch Fixed Asset Account

Stock and Debtor System 

A. Branch Stock Account;

a) Branch Branch Stock Account Account is a practical practical means of controlli controlling ng stock at branch. b) It is maintained maintained at at invoice invoice price price c) Actual Stock with with the branch branch is shown shown as the the balance balance in Date this Paraccount. ticulars Rs Date Particulars

Rs

Jan. 1

Branch b/d In transit At branch

Jan.1



B. Branch Debtors Account

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Date 

Jan. 1

When branch is allowed to sell goods on credit. It is used to exercise control over branch debtors. It is prepared like sundry debtors account. Particulars

Branch b/d

Rs

Date

Particulars

Jan.1

Balance b/d

Rs

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C. Goods sent to Branch Account

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Date Jan. 1  

Goods sent to branch account is credited with the invoice price of goods sent to the branch by the head office and transferred from other branches and debited with the invoice price of the goods Particulars Rs Date Particulars Rs returned/transferred by the branch. Branch b/d

Jan.1

Stock and Debtor System  

D. Branch Cash Account Branch Cash Account is prepared with a view to exercise control over the branch cash. The account is generally opened where the branch is allowed to hold cash received from debtors and use it for branch expenses and remit the balance to head office after Date Particulars Rs Date Particulars certain interval. Rs Jan. 1

Branch b/d

Jan.1


Stock and Debtor System  

E. Branch Expense Account Branch expense records all branch expenses in cash. In addition, this account is debited with the item like bad debts, discount allowed, depreciation on branch fixed assets, etc. The balance of this account is transferred to branch profit and loss account and thereby closed.

Date

Particulars

Jan. 1

Branch b/d

Rs

Date

Particulars

Jan.1


Rs


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F.

Branch Account

(Stock)

Adjustment

It is prepared to ascertain gross profit of the branch. This account summarizes the profit “loading” on all transactions. This account is credited with the stock Date Particulars Rs Date Particulars Rsto reserve on opening stock and loading on net good sent Janbranch. .1 BrancIt h bis /d credited with the Janloading .1 Balancon e b/dsurplus in stock. Creditors Outstanding Salaries

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Stock and Debtor System G. Branch Fixed assets Account The head office may maintain separate asset accounts for each fixed assets. This account is debited with the opening value of asset and purchase of an asset, if any. This account is credited with the depreciation provided on the asset.

Branch Accounting

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