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Advanced Financial Accounting

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Advance Financial Accounting (FIN-611)
VU
LESSON #13
BRANCH ACCOUNTING - STOCK AND DEBTOR SYSTEM
Stock and Debtors system is generally used when the goods are sent to the branch at
pro-forma invoice price and the size of the branch is large. Under this system, the
branch maintains a few central accounts to exercise greater control over the branch
stock and other related expenses. These accounts usually are:
1.
Branch Stock Account
2.
Branch Debtors Account
3.
Branch Expenses Account
4.
Branch Adjustment Account
5.
Goods Sent to Branch Account
6.
Branch Stock Reserve Account
Branch Stock Account
This account is on the pattern of a stock account. The account helps the Head Office in
maintaining an effective control over the Branch Stock and tells about shortage and
surplus in the branch stock because of the difference between the pro-forma invoice
price and the selling price.
Unlike traditional accounting practice, branch stock a/c is always maintained on the
selling price or pro-forma invoice price. Selling price is used to record the goods sold
by the branch to its customer and goods returned by the branch customers. Rest of the
information (even opening and closing balances) in branch stock a/c is recorded at
pro-forma invoice price.
Branch Debtors Account
Branch debtors' a/c is maintained in the traditional manner to record transactions in
between branch and its credit customers.
Branch Expense Account
The purpose of maintaining this account is nothing but the compile all branch
expenses at one place. This will include all types of expenses i.e. cash based expenses
and receivables based expenses.
Branch Adjustment Account
Branch adjustment a/c replaces the branch income statement (profit & loss a/c). This
is the account in which all expenses and losses are closed along with the margin that is
a difference between cost and the selling price. This difference is split into two; one is
termed as "surplus" that comes from the branch stock a/c representing the difference
between selling price and pro-forma invoice price, the second is termed as "loading"
that represents the difference between pro-forma invoice price and cost. This loading
is calculated on opening and closing stock balances and also on the net of the goods
sent branch.
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Advance Financial Accounting (FIN-611)
VU
Goods Sent to Branch Account
This is a supporting account, which is maintained to show second effects of the goods
sent to branch and the goods returned from branch at pro-forma invoice price.
Although the goods sent to and returned form the branch should be adjusted in the
purchases a/c of the head office, but as we know that the branch stock a/c is not
maintained at cost price, therefore, second effect of goods sent to and returned from
branch is not recorded directly into the purchases a/c instead this second effect is
recorded into the goods sent to branch a/c which after adjustment of the loading is
finally closed into the purchases a/c.
Branch Stock Reserve Account
This is contra to branch stock account. In this account opening and closing balance of
loading on branch stock is maintained.
ACCOUNTING ENTRIES IN THE BOOKS OF
HEAD OFFICE
Sr no.
JOURNAL ENTRIES
Debit
Credit
For Goods Sent to Branch (at Invoice)
Branch Stock Account (Dr)
xxx
(1)
Goods Sent To Branch Account (Cr)
xxx
For Goods Sold At Branch On Credit
Branch Debtors Account (Dr)
(At
xxx
(2)
Selling Price)
xxx
Branch Stock Account (Cr)
For Goods Sold At Branch For Cash
Branch Cash Account (Dr)
(At  xxx
(3)
Selling Price)
xxx
Branch Stock Account (Cr)
For Cash Received From Branch Debtors
Branch Cash Account (Dr)
xxx
(4)
Branch Debtors Account (Cr)
xxx
For Goods Returned by Branch
Branch Stock Account (Dr)
xxx
(5)
Branch Debtors Account (Cr)
xxx
For Goods Returned by Branch To Head Office
Goods Sent To Branch Account (Dr)
xxx
(6)
(At Invoice)
xxx
Branch Stock Account (Cr)
For Cash Sent By Head Office to Branch For
Expenses
xxx
(7)
Branch Expenses Account (Dr)
xxx
Cash Account (Cr)
For Bad Debts/ discount Allowed To Branch
Debtors
xxx
(8)
Branch Debtors Account (Dr)
xxx
Branch Debtors Account (Cr)
For Shortage/ Shrinkage in Branch Stock
(9)
Branch Adjustment Account (Dr)
xxx
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Advance Financial Accounting (FIN-611)
VU
Branch Stock Account
xxx
(Cr)
For Surplus In Branch Stock
Branch Stock Account (Dr)
xxx
(10)
Branch Adjustment Account (Cr)
xxx
For Closing Branch Expenses Account Into Branch
Adjustment Account
xxx
(11)
Branch Adjustment Account (Dr)
xxx
Branch Expenses Account (Cr)
For Transfer of Opening Stock Reserve (Loading)
Into The Branch Adjustment Account
Branch Stock Reserve Account (Dr)  (with loading
xxx
(12)
of opening
Branch Adjustment Account (Cr)
xxx
For Creating Stock Reserve on Closing Balance of
Stock (Loading on Closing Stock)
(13)
Branch Adjustment Account (Dr)
xxx
Branch Stock Reserve (Cr)
xxx
For Loading on Net Amount of Goods Sent to
Branch
xxx
(14)
Goods Sent to Branch Account (Dr)
xxx
Branch Adjustment Account (Cr)
For Closing Goods Sent To Branch Account Into
Purchase Account
(15)
Goods Sent To Branch Account (Dr)
xxx
Purchases Account (Cr)
xxx
For Closing the Branch Adjustment Account Into
Profit & Loss Account
Branch Adjustment Account (Dr)  (with the
(16)
xxx
amount of profit on branch)
Profit & Loss Account (Cr)
xxx
LEDGER ACCOUNTS
IN THE MAIN LEDGER OF HEAD OFFICE
BRANCH STOCK ACCOUNT
Particulars
Debit
Particulars
Credit
Balance Brought Forward (At ******
Branch Debtors (Credit Sales)
Jef (2)
Invoice)
(Selling Price)
Goods  Sent  to  Branch  (At Jef (1)
Branch Cash (Cash Sales)(Selling
Jef(3)
Invoice)
Price)
Branch Debtors (Sales Return)
Jef (5)
Goods Sent to Branch (Return)
Jef(6)
Branch Adjustment (Surplus)
Jef (10)  Branch Adjustment (Shortage)
Jef(9)
Balance Carried Forward (At
******
Invoice)
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Advance Financial Accounting (FIN-611)
VU
GOODS SENT TO BRANCH ACCOUNT
Particulars
Debit
Particulars
Credit
Branch Stock (Credit Sales)
Jef(6)
Branch Stock (Goods Sent) (At Jef(1)
Invoice)
Branch Adjustment (Loading)
Jef(14)
Purchases (Balancing Figure)
Jef(15)
BRANCH EXPENESE ACCOUNT
Particulars
Debit
Particulars
Credit
Cash (Expense)
Jef(7)
Branch Adjust (Closing)
Jef(11)
Branch
Debtors
(Discount Jef(8)
Allowed + Bad Debts)
BRANCH DEBTORS ACCOUNT
Particulars
Debit
Particulars
Credit
Opening
Balance
Brought ******
Cash Received
Jef(4)
Forward
Branch Stock (Credit Sales)
Jef(2)
Branch Stock (Sales Return)
Jef(5)
Branch Expense (Bad Debts + Jef(8)
Discount Allowed)
Balance Brought Forward
******
STOCK RESERVE ACCOUNT
Particulars
Debit
Particulars
Credit
Branch Adjustment (Transfer of Jef(12)
Opening Stock Reserve Brought ******
Opening Balance)
Forward
Closing Stock Reserve Balance ******
Branch  Adjustment  (Closing Jef(13)
c/f
Loading)
BRANCH ADJUSTMENT ACCOUNT
Particulars
Debit
Particulars
Credit
Branch Stock (Shortage)
Jef (9)
Branch Stock (Surplus)
Jef(10)
Branch Expense (Closed)
Jef (11)
Branch Stock Reserve (Opening
Jef(12)
Balance)
Branch Stock Reserve (Closing)
Jef (13)
Goods Sent to Branch (Loading)
Jef(14)
Profit
&
Loss
Account Jef (16)
(Balancing Figure)
Note: (Jef = Journal Entry Reference)
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Table of Contents:
  1. ACCOUNTING FOR INCOMPLETE RECORDS
  2. PRACTICING ACCOUNTING FOR INCOMPLETE RECORDS
  3. CONVERSION OF SINGLE ENTRY IN DOUBLE ENTRY ACCOUNTING SYSTEM
  4. SINGLE ENTRY CALCULATION OF MISSING INFORMATION
  5. SINGLE ENTRY CALCULATION OF MARKUP AND MARGIN
  6. ACCOUNTING SYSTEM IN NON-PROFIT ORGANIZATIONS
  7. NON-PROFIT ORGANIZATIONS
  8. PREPARATION OF FINANCIAL STATEMENTS OF NON-PROFIT ORGANIZATIONS FROM INCOMPLETE RECORDS
  9. DEPARTMENTAL ACCOUNTS 1
  10. DEPARTMENTAL ACCOUNTS 2
  11. BRANCH ACCOUNTING SYSTEMS
  12. BRANCH ACCOUNTING
  13. BRANCH ACCOUNTING - STOCK AND DEBTOR SYSTEM
  14. STOCK AND DEBTORS SYSTEM
  15. INDEPENDENT BRANCH
  16. BRANCH ACCOUNTING 1
  17. BRANCH ACCOUNTING 2
  18. ESSENTIALS OF PARTNERSHIP
  19. Partnership Accounts Changes in partnership firm
  20. COMPANY ACCOUNTS 1
  21. COMPANY ACCOUNTS 2
  22. Problems Solving
  23. COMPANY ACCOUNTS
  24. RETURNS ON FINANCIAL SOURCES
  25. IASBíS FRAMEWORK
  26. ELEMENTS OF FINANCIAL STATEMENTS
  27. EVENTS AFTER THE BALANCE SHEET DATE
  28. PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS
  29. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 1
  30. ACCOUNTING POLICIES, CHANGES IN ACCOUNTING ESTIMATES AND ERRORS 2
  31. BORROWING COST
  32. EXCESS OF THE CARRYING AMOUNT OF THE QUALIFYING ASSET OVER RECOVERABLE AMOUNT
  33. EARNINGS PER SHARE
  34. Earnings per Share
  35. DILUTED EARNINGS PER SHARE
  36. GROUP ACCOUNTS
  37. Pre-acquisition Reserves
  38. GROUP ACCOUNTS: Minority Interest
  39. GROUP ACCOUNTS: Inter Company Trading (P to S)
  40. GROUP ACCOUNTS: Fair Value Adjustments
  41. GROUP ACCOUNTS: Pre-acquistion Profits, Dividends
  42. GROUP ACCOUNTS: Profit & Loss
  43. GROUP ACCOUNTS: Minority Interest, Inter Co.
  44. GROUP ACCOUNTS: Inter Co. Trading (when there is unrealized profit)
  45. Comprehensive Workings in Group Accounts Consolidated Balance Sheet