ACCOUNTANCY FORM 5 – BRANCH ACCOUNT

BRANCH ACCOUNTS/ACCOUNTING  

Is an accounting system in which separate accounts are maintained for each branch of a corporate entity or organization the primary objectives of branch accounting are better accountability and control, since portability and efficiency can be closely tracked at the branch level.

Branch accounting may involve added experience for an organization in terms of accounting and infrastructure. This is because it may be necessary to appoint branch accountant to insure accurate financial reporting and compliance with head office procedure and process.

Aim of branch

i.    To find out profit or loss generated by each branch (profit ascertainment at each branch).

ii.   To check up the movement of goods and cash flow to and from the branch. (To ensure strict control is institute at the branch to prevent wastage of resources).

iii.  To ascertain the financial position of each branch on a particular date.

iv.  To know the cash and goods requirements of each branch.

There are two types of Branches

1. Dependent Branches
   
2. Independent Branches
   

 

edu.uptymez.com

What is Dependent Branches is the branch which does not maintain its own set of books of accounts. All records have to be maintained by head office or head quarter.

Dependent branches has divided into two branches, which are

1. Home branches
   
2. Foreign branches
   

 

edu.uptymez.com

FEATURES OF DEPENDENT BRANCH.

1. It does not maintain its own set of books. The head office maintains all records transactions.
   
2. Generally all books goods are supplied to the branch by head office
   
3. All extenders are supplied
   
4. Cash received by the banks from his debtors are remitted to the head office.
   

 

edu.uptymez.com

ADVANTAGES OF BRANCH ACCOUNT

1. Reduce burden of the head office
   
2. High degree of sales
   
3. Less cost of operating.
   

 

edu.uptymez.com

Systems of Accounting

• Debtors system
  
• Stock and debtors system
  
• Final account system
  

 

edu.uptymez.com

DEPENDENT BRANCHES
  1. Dependent branches is where branches don’t keep complete account

2. Such branches have limited power for their operations i.e this branches do not keep complete account as per double entry .

  3. Usually, such braches keep cash book, customers account and stock register therefore trial balance cannot be prepared in the books of the branch.

4. The head office has overall control over accounts such branch has following characteristics.

  5. Branches set goods supplied by the head office. Under special circumstances only, a branch is allowed to purchase from the market.

6. All cash received by the branch is remitted to the head office

  7. The head office remits cash for branch expenses. However a branch may be allowed to keep some petty cash balance

8. All accounts of branch assets such as furniture, premises e.t.c are maintained in head office books.

  9. A branch keeps memorandum records of its transactions hence, trial balance n books of branch cannot be maintained or prepared

10. Goods are supplied by head office to branch either and cost price or above cost

 N.B:

Head office will maintain separate record for the transaction related, to each branch so that profit or loss calculated
.Account in the books of the head office may be maintained according to any of the following records to such branches
.Debtors methods
.Bank

Debtors methods
Under this method, the branch account is prepared in the books of H/O to ascertain profit or loss of each bank

• The nature of branch account is that of nominal account
  
• In branch a/c all transactions between H.O and in branch are shown
  
• Balance in branch a/c represents profit or loss of the branch. As debtors.
  

 

edu.uptymez.com

The following are the journal entries

     1. For opening balances of assets or branch (induct ally)

         Dr. Branch a/c

        CR: Assets/Branch assets

     2. For goods sent to branch

DR. Branch a/c

        CR: Goods sent to branch a/c

      1. For   cash remitted by head office

          Dr: Branch a/c

          CR: Cash a/c

2.For goods returned by branch to head office

        DR. Goods sent to branch a/c

        CR. Branch a/c

    3. For goods returned by debtors directly to H.O

       Dr. Goods sent to branch a/c

       Cr. Branch a/c

4. For cash received from branch

       Dr. Cash

      CR: Branch a/c

   5. For closing balances of branch assets

      DR: Branch assets a/c (separately)

      CR: Branch a/c

  6. For closing balances of branch liabilities

     DR: Branch a/c

     CR: Branch liabilities

7. For credit of balance of branch a/c being profit

    DR: Branch a/c (Profit and profit a/c)

    CR: Trading a/c purchases a/c

ILLUSTRATION (1)

F LTD opened a branch in 2009 at Dodoma the figure for 2009 are given below

• Cash sent to branch or expenses                      35,000
  
• Stock on 31^st Dec 2009                                   40,000
  
• Sundry debtor 31^st Dec. 2009                          17,000
  
• Goods sent to branch                                     250,000
  
• Sales   (cash)                                                100,000
  

             (Credit)                                             180,000
  

• Cash received form debtor                             160,000
  

 

edu.uptymez.com

Give journal entries and ledger a/c for 2009

     DR                              BRANCH ACCOUNT                                    CR

JOURNAL ENTRIES

ILLUSTRATION 1.

Dar Es Salaam had a branch at Dodoma Goods sent by head office at invoice price which is at price of 20% on invoice price. All expenses price which is at price of 20% on invoice price. All expenses of the branch are paid by the head office (H.O) Particular
Opening balances:
Stock at invoice price                                  11,000
Debtors                                                     17,000
Petty cash                                                      100
Cash sent to branch at invoice price             20,000
Expenses made by the H.O                              600
Rent                                                               200
Salaries and other expenses                             900
Remittance made to H.O
Cash sales                                                   2,650
Cash collected from debtors                        21,000
Goods returned by branch at invoice price        400
Balance at the end
Stock at invoice price                                 13,000
Debtors at the end                                       2,000
Petty cash                                                        25
From the book of Head office draw up Branch a/c

 ILLUSTRATION 2.
The Balance LTD in Arusha is having a branch at Tanga. Goods are invoiced to the branch at 20%. Branch has been instructed to send all cash daily to the head office. All expenses are paid by Head office except petty cash expenses which are made by Branch manager.

From the following details prepare branch a/c in the book of B. B trace Ltd
Stock 1^st Jan 1995 (choice price)                                      15,000
Sundry debtors Jan 1995                                                   9,000
Cash in hand 1^st Jan 1995                                                    400
Office furniture 1^st Jan 1995                                              1,200
Goods invoiced from the H.O at invoiced price was             80,000
Goods returned to the H.O was                                          1,000
Goods returned by debtors amount was                            30,000
Cash sales                                                                      50,000
Credit sales                                                                    30,000
Discount allowed to debtors                                                 300
Expenses made by H.O
Rent                                                                               1,200
Salaries                                                                           2,400
Stationary and painting                                                        300

Petty expenses paid by branch manager
Stock at 31^st December 1995 (choice price)                      14,000
Depreciation is to be provided in Branch furniture at 105 pc.

You are required to draw up Tanga a/c in the book of B. furniture
When goods are sent or inserted to the branch at a higher than price cost (sent goods to invoice price) When the goods are sent by the head office to the branch at sale or invoice price that is cost + same percentage of profit the branch manager is required to sell the goods at invoice price only otherwise it is a allowed by H.O to sell at either higher or lower than invoice price.

Head office will maintain branch accounting in the same line as in previous discussion but the entry relating to goods, sent to branch, goods returned by branch to H.O closing and opening stock at the branch will be at invoice price and in order to complete the P/L of the branch.

The following adjustment entry will have to be passed in the Head Office, closing and opening stock at the branch will be at invoice price and in order to complete the P/L of the branch.
1. For adjustment of excess price of the opened stock of branch
DR: Stock reserve a/c
CR: Branch A/c
2. For adjustment of excess price of goods sent to branch less returned to H.O

DR: Goods sent to branch a/c
CR: Branch a/c

With the profit loaded Always closing stock should be valued at cost or market price whichever is lower (according to prudence (stock valuation) this is based on principle of conservation (prudence) i.e. Asset should not be overvalued means no profit should be anticipated and loss should be provide furthermore, the unsold stock lay in the branch will not earn any profit unless sold. For the adjustment of excess price unsold goods at branch

DR: Branch A/c
CR: Stock Reserve a/c

Working the illustration 1.

For adjustment of excess price of goods sent to branch, less with goods returned by branch to H.O.

Goods sent to branch                       20,000

Less Goods returned to H.O                400

19600 X20/100= 3920

• For adjustment of opening stock of the branch
  

  11,000 x 20/100 = 2200 (stock reserve)
  

• For adjustment of excess price of closing stock of the branch:
  

  13,000 x 20/100 = 2600   (stock reserve)
  

 

edu.uptymez.com

DR                                       DODOMA BRANCH OF NSTU IN DSM                                                         CR

While preparing branch a/c care should be taken with respect to the following items.

1. Credit sales, sales return, bad debts, discount allowed
   

 

edu.uptymez.com

• These items are not shown in branch a/c
  
• Net effects of these items is automatically given directly in branch a/c by showing opening balance, debtors, cash received from debtors a/c and closing balance from debtors however these items will be and closing balances from debtors however these items will be used for preparing memorandum branch debtors a/c.
  

  Depreciation of fixed assets
  

• This is also not showed in branch a/c, i.e when open and closing balance of fixed assets are shown, the effects of depreciation is automatically there.
  

  Loss of stock and Surplus of Stock
  

• This is also not showed in branch a/c but amount of claim if any is credited in branch a/c
  

  Expenses incurred by branch
  

• Expenses actually paid by the branch are not shown in branch a/c but amount remitted by H.O to branch for remitting expenses is debited to branch a/c
  
• If actual amount spent by branch is less, the cash balance is shown as a part of closing balances of branch asset in the credit side of the branch a/c
  

 

edu.uptymez.com

 If opening balance of branch cash is 100/= cash remitted by Head office to branch is 6000/= and closing balance of branch with cash is 500.

DR                                       BRANCH   A/C                             CR

Opening balance                  1000               Closing balance        500

Cash remitted                      6000

STOCK AND DEBTORS SYSTEM /METHODS

• Under this system account related to branch are maintained in a more comprehensive and detailed manner as compared to debtors system.
  
• Under this system separate a/c are prepared for various accounting function.
  
• The accounting procedures under this system depends upon policy of the H.O will regards to pricing of goods sent to branch.
  
• Therefore. H/O adopts one at the following methods /systems for invoicing goods.
  

 

edu.uptymez.com

1. At cost to H/O
   
2. At selling price of the branch.
   
3. At cost price + fixed margin of profit.
   

 

edu.uptymez.com

  In this case, branch may sell goods at higher or lower than the invoice price.

 The accounting procedures under this above three situations are as follows

1. Branch stock A/c
   
2. Goods sent to branch A/c
   
3. Branch debtors A/c
   
4. Branch expenses A/c
   
5. Branch profit and loss A/c
   
6. Branch cash A/c
   

 

edu.uptymez.com