FINANANCIAL ACCOUNTING NOTES

1. STAFF NAME : DR.J.KUMAR
COURSE NAME: FINANCIAL
ACCOUNTING

2. Branch Accounting
Meaning of Branch Accounting
Branch Accounting is the system of the bookkeeping
under which the company maintains separate accounts
for each of the operating locations or branches of the
company and it is followed with the motive of
increasing the transparency and knowing the cash flow
position and the financial picture of each such location
of working of the company.

3. Branch Accounting is a system in which separate
books of accounts are maintained for each branch.
These branches are divided as per geographical
locations, and each branch has its profit
centers and cost center. In this accounting system,
separate Trial Balance, Profit & loss statement
and balance sheet are prepared by each branch.

4. Objectives of Branch Account
(i) To know the profit or loss of each branch
(ii) To know the financial position of each branch
(iii) To control the activities of the branch
(iv To find out the requirement of goods or cash for each
branch
(v) To provide concrete suggestions for the improvement in the
working
of different branches
(vi) To compare the performance of one branch with that of
another
branch
(vii To meet the statutory requirements

5. Types of Branches
1. Dependent Branches
2. Independent Branches
3. Foreign Branches

6. Dependent Branches: The branches wholly dependent,
are called dependent branches. Such branches act
merely as selling agencies. Dependent branches do not
keep any books of account; accounts are maintained
only in the books of head office. These branches keep
only a few essential records and furnish the necessary
periodical information to the head office. Dependent
branches are also known as ‘Branches not keeping full
system of accounting.

7. FEATURES OF DEPENDENT BRANCHES:
1. Dependency: these are the branches which usually
depends Head Office for supply of goods and not
allowed to purchase from outside.
2. Price of the Goods: supplied by the Head Office
may be at Cost Price or at Invoice price which includes
some profits.
3. Expenses: all regular expenses of the branch are
directly paid by the Head Office through cheque.

8. 4. Sales: normally branch will sell the goods for cash
only but in some cases with the authorization from
Head Office branch also sells goods for credit.
5. Remittance of Cash: cash received by the branch
through cash sales and from debtors are to be remitted
to Head Office or Deposited into bank account in the
name of Head Office daily. 6. Books maintained: such
branches will maintain Cash book, Petty Cash book,
Debtors accounts and Stock registers, on memorandum
basis.

9. 7. Accounting function: usually branches do not
perform accounting function but sends information to
Head Office for accounting purpose.
8. Petty cash: even though all expenses reimbursed and
paid by Head Office branch is allowed to maintain petty
cash balance.
9. Petty expenses: from the petty balances maintained
by the branch usually branch manager will pay for the
petty expenses

10. .
Independent Branches: Independent branches mean
such branches which have the rights to sell-purchase
and other transaction by themselves. But it never means
that it does not depend on the head office. The
independence of a branch is referred to ‘Independence
in accounting function’. Hence, a branch is called
‘Independent’ only when it is allowed to maintain full
accounting system.

11. Features of Independent Branches:
1. Independency: these branches will not depend the
Head Office for supplies of goods they purchase from
open market and also can be receive from Head Office.
2. Selling price: without any restrictions branches are
allowed to sell the goods at a price they desire.
3. Set of Books: branches will maintain a complete set
of books of accounts for all transactions.

12. 4. Remittance of cash: cash received by the
branch from cash sales & from debtors need not be
remitted to Head Office and they can retain with
the branch.
5. Final Accounts: such branches will prepare
their own Trail Balance, and Trading and Profit
and Loss account as well as Balance Sheet for the
Trading period.

13. . Foreign Branches: A branch, which is situated in
a foreign country, is called foreign branch. All
general bookkeeping of such branches will be
similar like independent branches. The basic
feature of a foreign branch is that it maintain its
accounts in the currency of that country in which it
is situated. Therefore, before any information by
branch can be used by head office, it must be
converted into currency of the head office.

14. Stock and Debtors Method: In order to have a
detailed information and exercise more control over
the branch stock, debtors method is used because a
number of accounts are prepared for different
purposes under this method. Under this system,
instead of opening one branch account as in debtors
system, separate accounts are opened for various
types of transactions at the branch

15. Under ‘Stock and debtors method’, the head office
usually maintain the following accounts:
1. Branch stock account.
2. Goods supplied to branch account.
3. Branch expenses account.
4. Stock reserve account.
5. Branch adjustment account.
6. Branch profit & loss account.

16. Wholesale Branch: The producers of the goods
generally sell their products to the wholesalers
which was later on sold to the retailers who sell
them to the consumers. Instead of selling goods to
the wholesalers, they may send goods to their
branches at wholesale price and the branches may
sell goods to the consumers at retail price.

17. By doing so, two advantages can be taken:
1. The branches may sell goods to the consumers at
reasonable price; and
2. The head office may earn profits which otherwise had
to be given to wholesalers plus the profit which is
earned through branches by selling goods to the
consumers. A memorandum Trading and Profit & Loss
Account of the branch on wholesale price basis prepared
to calculate the profit/loss of the branch under this
method.