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Branch Accounting

Branch Accounting. Branch. A trading company may try to expand its business by opening BRANCHES as another establishment of the company in different locations. INTRODUCTION :.

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Branch Accounting

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  1. BranchAccounting

  2. Branch • A trading company may try to expand its business by opening BRANCHES as another establishment of the company in different locations

  3. INTRODUCTION : • In order to increase the sales , business houses are required to market their products over a larger territory and may generally split their business into certain divisions or parts . If the various parts are located in different parts of the city , different cities or in different countries like Germany , Australia etc , these are known as branches . Head office controls the activities of various branches .

  4. OBJECTIVES OF BRANCH ACCOUNTING : • The main object of keeping branch accounts is dependent on the nature of business and specific need of a particular branch. • To know the profit or loss of each branch . • To ascertain financial position of each branch on a particular date. • To know the cash and goods requirement of the various branches. • To evaluate the progress and performance of each branch .

  5. TYPES OF BRANCHES • (A) . Branches not keeping full system of accounting (dependent branches) . • (B) . Branches keeping full system of accounting (independent branches) .

  6. Branches not keeping full system of accounting (dependent branches) .

  7. Features of dependent branches • Such branches sell only those goods which are received from the head office and are not usually allowed to make purchases in the open market . • Goods are supplied by the head office to such branches either at cost price or at invoice price . • All expenses of the branch such as rent , salary or staff , advertisement etc. are paid by the head office. • Petty expenses such as cartage , entertainments etc. are paid out of petty cash book balance .

  8. The amount received from cash sales or cash received from debtors is either remitted to the head office daily or deposited in the account of head office at some local bank . • The branch manager is normally expected to sell the goods for cash only but he may be authorized to sell goods on credit in certain cases . • Such branches do not maintain their own books of account . All records are maintained by the head office .

  9. Account kept by Branch

  10. Account Kept by Branch • Head office and Branch will open a full set of books to record their won transactions instead of branch books are kept by the Head office

  11. In Head Office books: • Branch Current Account is opened to record transactions between the Head Office and the Branch • In Branch books: • Head Office Current Account is opened to record transactions between them

  12. HO’s Book: Branch Current Rs Rs Bal b/f X Goods in Transit X Remittance from branch X Branch net profit X Cash in Transit X Bal c/f X X X Branch’s Book: HO Current Rs Rs Remittance to HO X Bal b/f X Bal c/f X Net profit X X X

  13. Goods in Transit (GIT) • Goods were sent by the Head Office before the end of the financial period, but received by the branch after the end of the financial period • GIT =Goods Sent to Branch – Goods received from HO

  14. Remittances/Cash in Transit (CIT) • The remittance or cash was remitted by the branch before the end of the financial period, but was received by the Head office after the end of the financial period • CIT= Remittance to Head Office – Remittance from Branch

  15. Preparation of the Final Accounts • Separate trading and profit and loss accounts and balance sheets would be prepared for the head office and the branch(es)

  16. Inter-company transactions • It would not be transferred to the total column of the trading and profit and loss account and the balance sheet • For example, goods sent to the branch, goods from the head office, service overheads charged by the head office to the branch, head office current account, branch current account provision for unrealized profit

  17. ACCOUNTING RECORDS FOR HEAD OFFICE OR SYSTEM OF ACCOUNTING FOR BRANCH : • (1) . DEBTORS SYSTEM (synthetic method) • (2) . FINAL ACCOUNT SYSTEM . • (3) . STOCK AND DEBTORS SYSTEM (analytical method) . • (4) . WHOLESALE BRANCH SYSTEM .

  18. (1) .DEBTORS SYSTEM : • This system is adopted generally in those branches which are fairly small in size . Under this system , head office opens a separate account for each branch in order to record all transactions relating to that branch . This account is a nominal account in nature and is prepared to calculate profit and loss for each branch . Goods supplied by the branch may be either at cost price or at cost plus profit . The main defect in this method is that it does not provide full information for analysis of branch profit and loss .

  19. ILLUSTRATION -1 • Invoicing goods to branch at cost . • From the following particulars relating to Delhi branch for the year ending 31st march 2012 , prepare necessary accounts in the head office books : • Balances as on 1-4-2011 : • Stock at branch = 15000 • Debtors at branch = 30000 • Petty cash at branch = 300 • Goods sent to branch during the year = 252000 • Remittance from the branch :

  20. For cash sales = 60000 • Received from debtors = 210000 • Total = 270000 • Goods returned by the branch = 2000 • Credit sales during 2011-2012 = 228000 • Cheques sent to branch during the year : • For salaries = 9000 • For rent & taxes = 1500 • For petty cash = 1100 • Total = 11600 • Balances as on 31-3-2012 • Stock at branch = 25000 • Petty cash = 200 • Debtors = 48000

  21. DELHI BRANCH ACCOUNT for the year ended 31-3-2012 :

  22. BRANCH DEBTORS A/C : BRANCH STOCK A/C :

  23. INVOICING PRICE METHOD : • ILLUSTRATION – 2 • Unique stores ltd. has an old established branch at Kanpur . Goods are invoiced to branch at 20% profit on invoice price. All expenses are paid by head office except petty expenses. • Stock on 1-1-2011(invoice price) = 15000 • Sundry debtors = 9000 • Cash in hand = 400 • Office furniture = 1200 • Goods supplied by head office (invoice price) : • Goods returned to head office = 1000

  24. Goods returned by debtors = 480 • Debtors at the end = 8220 • Cash sales = 50000 • Credit sales = 30000 • Discount allowed = 300 • Expenses paid by head office : • Rent = 1200 • Salary = 2400 • Stationery and printing = 300 • Petty expenses paid by branch manager = 280 • Stock on 31-12-2011 (invoice price) = 14000 • Provide depreciation on furniture @10% .

  25. BRANCH ACCOUNT :

  26. DEBTORS ACCOUNT : • Working note - 1 : • Calculation of cash received from debtors .

  27. (2). FINAL ACCOUNT SYSTEM : • According to this system , the profit and loss made by the branch is determined by preparing branch trading and profit & loss a/c at cost price . It should be carefully noted that all expenses whether paid by the head office or by the branch are debited to trading and profit & loss a/c prepared for the branch . • Illustration – 3 : • A delhi merchant has a branch at chennai to which he charges the goods at cost plus 25% . The branch keeps its own sales ledger and remits all cash received to the head office everyday .

  28. Stock 1-1-2011 at invoice price = 11000 • Debtors = 100 • Petty cash = 100 • Cash sales = 2650 • Goods sent to branch at invoice price = 20000 • Collection on ledger accounts = 21000 • Goods returned to Head Office. at invoice price = 300 • Bad debts = 300 • Allowances to customers = 250 • Return inwards = 500 • Cheques sent to branch :

  29. BRANCH TRADING & PROFIT & LOSS A/C for the year ending 31-12-2011 Rent = 600 Salary & other expenses = 900 Wages = 200 Stock 31-12-2011 at invoice price = 13000 Debtors = 2000 Petty cash (including) : Misc income = 25 Not remitted = 125

  30. BRANCH ACCOUNT (PERSONAL) ACCOUNT :

  31. (3). STOCK AND DEBTORS SYSTEM • There is yet another method of calculating profit and loss of a branch which is popularly known as (stock & 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 by the head office over the branch . • (a) . Goods charged to branch at cost price . ILLUSTRATION – 4 :

  32. Stock 1-1-2011 = 15000 • Stock 31-12-2011 = 14000 • Debtors 1-1-2011 = 25000 • Debtors 31-12-2011 = 35000 • Cash at branch 1-1-2011 = 500 • Cash sent to branch = 1500 • Goods sent to branch = 50000 • Goods returned by branch = 500 • Cash sales = 32000 • Credit sales = 58000 • Allowances to customers = 300 • Returns from customers = 600

  33. Bad debts written off = 500 • Discount allowed to customers = 2000 • Remittance from branch = 70000 • Rent & taxes = 1500 • Salaries = 5000 • General trade charges = 1500 • Normal loss of goods due to wastage = 1000 • Abnormal loss of goods due to pilferage = 2000

  34. BRANCH STOCK ACCOUNT :

  35. BRANCH DEBTORS ACCOUNT :

  36. BRANCH CASH ACCOUNT :

  37. GOODS SENT TO BRANCH ACCOUNT : BRANCH EXPENSES ACCOUNT :

  38. BRANCH PROFIT & LOSS A/C :

  39. (b) . Goods charged to branch at selling price : • ILLUSTRATION – 5 • Crown industries has a branch at madurai to which goods are invoiced at cost plus 25% . Branch expenses are paid direct from head office and the branch remits all cash to head office . • Goods received from head office at i.p. = 60000 • Returns to head office at i.p. = 1200 • Branch stock on 1-1-2011 at i.p. = 6000 • Cash sales = 20000 • Credit sales = 36000 • Branch debtors on 1-1-2011 = 7200

  40. Cash collected from debtors = 32000 • Discount allowed to debtors = 600 • Bad debts in the year = 400 • Goods returned by debtors to branch = 800 • Rent , rates and taxes at branch = 1800 • Branch office expenses = 600 • Branch stock at invoice price on 31-12-2011 = 12000

  41. BRANCH STOCK ACCOUNT :

  42. BRANCH DEBTORS ACCOUNT :

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