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Advance Financial Accounting (FIN-611)
VU
LESSON # 11
BRANCH ACCOUNTING SYSTEMS
Accounting system for Retail Dependent Branch
There are three methods to calculate profits of a retail dependent branch. Any of these
can be used to calculate branch profits; nevertheless, selection of method will depend
upon the nature of operations, size and level of complexity of the transaction.
 Debtor system
 Income statement system
 Stock and debtor system
Debtor System
This system of accounting is suitable for the small sized branches. In this system a
Branch a/c is opened for each of the branches in the main ledger of head office. Each
and every transaction that is made in between the head office and its branches is
entered into the specific branch account. For example there are two branches of a
business one in Gujranwala and the second in Karachi. The head office will open two
ledger accounts in its main ledger one named and titled as Gujranwala Branch a/c and
the other as Karachi Branch a/c. The branch accounts are maintained in such a way
that these will give the amount of profits or losses of the respective branches.
Lets have a glance, how does a Branch a/c look like?
Books of the Head Office
Branch Account
Particulars
Rs.
Particulars
Rs.
Op. Stock
*** Op. Creditors
***
Opening
Op. Debtors
*** Op. Outstanding Expenses
***
Liability
Opening
Op. Petty Cash
*** Cash received from branch
Assets
Op. Furniture
Cash Sales
***
***
Drawings
Op. Prepaid Expenses
Collection from Debtors
***
***
Goods sent to Branch
*** Goods Returned by Branch
***
Fresh
Cash sent to branch
Cl. Stock
***
Capital
for branch expenses
*** Cl. Debtors
***
Closing
Assets
for any other purpose
*** Cl. Petty Cash
***
Cl. Creditors
*** Cl. Furniture
***
Closing
Liability
Cl. Outstanding Expenses
*** Cl. Prepaid Expenses
***
Profit & Loss A/c (Profit)
*** Profit and Loss A/c (Loss)
***
***
***
In the above Branch a/c we can very well observe few facts which are as under:
1. At the beginning of the year the Branch a/c is debited with the opening
balances of assets lying with the branch and credited with the opening balances
of the branch liabilities. Doing this debit and credit as a result we have opening
capital balance at debit side of the Branch a/c
2. At the ending of the year the Branch a/c is credit with the closing balances of
assets lying with the branch and debited with the closing balances of the branch
liabilities. Doing this debit and credit as a result we have closing capital balance
at credit side of the Branch a/c
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Advance Financial Accounting (FIN-611)
VU
3. During the year the head office has sent to branch goods for selling and cash for
whatever purposes. These both are debited to the Branch a/c. This can be
considered as fresh capital (resources) introduced by head office into its branch.
4. During the year the head office has received goods (as returned goods) and
cash (resources) from its branch, the source might be any one e.g. cash sales or
credit customer or even by selling branch assets. This receipts of cash and
return of goods is credited to the Branch a/c. This can be considered as
drawings made by the head office out of the branch.
Now applying the rules studied in the single entry accounting system we can get
the amount of net profit/loss of the branch.
Accounting Entries in the Books of Head Office
1. For opening balances of assets at the branch
Branch a/c
Branch assets a/c (individual accounts)
2. For opening balances of liabilities at the branch
Branch liabilities a/c (individual accounts)
Branch a/c
3. For goods sent to the branch
Branch a/c
Goods sent to branch a/c
4. For return of goods by the branch
Goods sent to branch a/c
Branch a/c
5. For remittance of cash or cheque to the branch
Branch a/c
Cash/Bank a/c
6. For cash or cheque received from the branch
Cash/Bank a/c
Branch a/c
7. For closing balances of assets at the branch
Branch asset a/c (individual accounts)
Branch a/c
8. For closing balances of liabilities at the branch
Branch a/c
Branch liabilities a/c (individual accounts)
9. For closing goods sent to branch account.
Goods sent to branch a/c
Purchases a/c
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Advance Financial Accounting (FIN-611)
VU
10. For closing branch account into the profit and loss account
Incase of profit
Branch a/c
Profit & loss a/c
Incase of loss
Profit & loss a/c
Branch a/c
Solved Problem
Problem # 1
From the following information relating to the Sialkot Branch for the year ending 31st
March, 2007, prepare the Branch Account in the books of head office.
Rs.
Rs.
Opening Stock at Branch
37,500  Cheque sent to Branch
Opening Debtors in Branch
75,000
Salaries
22,500
Opening Petty Cash at Branch
750
Rent & Taxes
3,750
Goods Sent to Branch
630,000
Petty Cash
2,750
Cash Sales
150,000  Closing Stock at Branch
62,500
Cash Received from Debtors 525,000
Closing Debtors at Branch
120,000
Goods Returned by Branch
5,000
Closing Petty Cash at Branch
500
Credit Sales
570,000
Solution:
Books of Head Office
Sialkot Branch Account
Particulars
Rs.
Particulars
Rs.
Opening Stock
37,500
Cash Received from Branch
675,000
Opening Debtors
75,000
Goods returned from Branch
5,000
Opening Petty Cash
750
Closing Stock
62,500
29,000
120,000
Cash sent to Branch
Closing Debtors
Goods sent to Branch A/c
630,000
Closing Petty Cash
500
General Profit & Loss A/c
90,750
(Profit)
863,000
863,000
Problem # 2
Excellent Garments of Multan has a branch at Lahore. Goods are supplied to the branch
at cost. The expenses of the branch are paid from Multan and the branch keeps a sales
journal and the debtors' ledger only. From the following information supplied by the
branch, prepare a Branch Account in the books of the head office. (All figures in rupees)
Opening Stock
24,000
Closing Debtors
9,150
Closing Stock
18,000
Opening Debtors
?
Goods received from HO
33,600
Bad Debt
140
Credit Sales
41,000
Exp. paid by Head office
10,400
Cash Sales
17,500
Cash received from Debtors 37,900
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Advance Financial Accounting (FIN-611)
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Pilferage of goods by the employees
(Normal Loss)
2,000
Solution:
In the books of Head Office (Multan)
Lahore Branch Account
Particulars
Rs.
Particulars
Rs.
Opening Stock
24,000 Cash Received from Branch
17,500
6,200 Cash Received from Debtors
Opening Debtors
37,900
10,400 Closing Stock
Cash sent to Branch
18,000
33,600 Closing Debtors
Goods sent to Branch a/c
9,160
General Profit & Loss a/c
8360
(Profit)
82,560
82,560
Working:
Debtors Account
Particulars
Rs.
Particulars
Rs.
Op. Debtors (Balancing
6,200 Cash Received from Debtors
37,900
41,000 Bad Debts
fig)
140
Sales (credit)
Cl. Debtors c/f
9,160
47,200
47,200
Problem # 3
From the following particulars of a dependent branch. Prepare Branch a/c showing
the profit or loss of the branch for the year ended 31-12-2007: (all figures are in Rs.)
Opening stock
30,000
Goods sent to branch
90,000
Cash sent by head office
Cash sales
120,000
for salaries
10,000
for other expenses
4,000
Closing stock could not be ascertained but it is know that the branch usually sells
at cost plus 20% of the cost.
Solution:
Branch Account
Rupees
Rupees
Opening stock
30,000  Cash received from branch  120,000
Goods sent to branch
90,000
closing stock
20,000
Cash sent to branch
14,000
Profit & loss a/c
6,000
140,000
140,000
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Advance Financial Accounting (FIN-611)
VU
Working:
Calculation for Closing Stock
Sales at
120%
120,000
Cost of sales at
100%
120,000 x100/120 = 100,000
Opening stock + Goods sent ­ Closing stock = Cost of sales
30,000 + 90,000 ­ X = 100,000
X (closing stock) = 120,000 ­ 100,000
X (closing stock) = 20,000
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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