Chapter 3

Branch Accounting
Chapter outcomes:
1. Meaning and nature of branch accounting;
2. Advantages of branch operations;
3. Different types of braches;
4. Types of inland branches;
5. Different types of accounting methods;
6. Accounting methods applicable to dependent
branches;
7. Pro forma journal entries under debtors
method;
8. Practical exercises;

Meaning of branch
accounting
Branch
accounting
is
a
specialized
accounting
methods
adopted
by
an
organization which has branches in different
location.
A branch is a subordinate division of an
organization.
A branch is any establishment carrying on
either the same or substantially the same
activity as that carried on by the head office
of an organization.

Advantages of branches
When an organization operates branches in different
location, the following advantages are achieved by the
head office:
1. The head office is able to extend its operations in
different locations in order to exploit the business
opportunities available in the places;
2. Branch operations are considered to be an effective
tool to face the competition from the rival
organizations;
3. Branch operations facilitate effective marketing
network for the overall objectives of the organizations

4. The expansion programmes of an

organization can be carried out
through opening different branches;
5.Branch operations facilitate more
employment opportunities;
6. Branch operations increases the
turnover of the organization and
thereby the profit of the organization;
7. Branch operations facilitate the
organization to achieve economies of
large scale operations.

Different types of branches

Basically branches can be classified into two broad

categories:
1. Inland Branches: The branches which are located
within the territory of a country in which the head
office is operating are known as inland branches
2. Foreign Branches: The branches which are located
in any countries other than the home country in
which the head office is operating are known as
foreign branches

Types of inland branches

The inland branches can also be classified in to the following
two types:
1. Dependent branches: The branches which do not maintain a
complete record of its transactions is said to be dependent
branches. These branches depend on the head office for the
entire operations wherein all goods are supplied by the head
office and expenses are paid by the head office.
2. Independent branch: The branches which maintain a
complete record of its transactions is said to be independent
branches. These branches are having the freedom of own
purchases and sales according to the marketing situations.

Methods of maintaining the

accounts of dependent branches
The following are the different methods of
maintaining
accounts
of
dependent
branches:
1. Debtors method: This method is usually
adopted when the branch is small. Under
this method, the head office maintains
separate branch account for each branch.
Such branch account is nominal nature.
Its purpose is to ascertain profit or loss
made by each branch

Pro forma Journal entries in the books of head office

(under debtors method)
1. To record the opening balances of branch assets:
Branch Account Dr.
XXXX
Brach Assets account Cr.
XXXX
(Being the opening balances of assets in the branch)
2. To record the opening balances of liabilities:
Branch liabilities Account Dr. XXXX
Branch account Cr.
XXXX
(Being the opening balance of liabilities in the branch)
3.When goods are supplied to the branch:
Branch Account Dr.
XXXX
Goods sent to branch A/C Cr.
XXXX
(Being the goods sent to branch)

4. When the goods are returned by the branch:

Goods sent to branch account Dr. XXXX
Branch account Cr.
XXXX
(Being the goods returned by the branch)
5. When goods are supplied by one branch to another branch under the
instruction of the head office:
Goods sent to branch account Dr. XXXX
Branch account Cr.
XXXX
(Being the goods supplied to other branch)
6. When the goods supplied by the head office but not received by the
branch :
Goods in-transit account Dr. XXXX
Branch account Cr.
XXXX
(Being the goods in transit)

7. When the head office pays for the expenses of the branch:
Branch Account Dr. XXXX
Cash/Bank account Cr.
XXXX
(Being the expenses paid for the branch)
8. When the remittance is received from the branch:
Cash/Bank account Dr. XXXX
Branch Account Cr.
XXXX
(Being the cash received from the branch)
9. When the remittance is in-transit:
Bank/Cash in transit account Dr. XXXX
Branch account Cr.
XXXX
(Being the cash in transit)
10. Transfer of goods sent to branch:
Goods sent to account Dr. XXXX
Trading account Cr.
XXXX
(Being the goods sent to branch account transferred to trading account)

11. To record the closing balance of branch assets:

Branch Assets Dr. XXXX
Brach account Cr.
XXXX
(Being the closing balance of branch assets)
12. To record the closing balance of branch liabilities:
Brach account Dr.
XXXX
Branch liabilities account Cr.
XXXX
(Being the closing balance of branch liabilities)
13. To record profits or loss :
If Profit: Brach account Dr. XXXX
General Profit and Loss A/C Cr. XXXX
If Loss: General Profit and Loss A/C Dr. XXXX
Branch Account Cr.
XXXX