ACCOUNTING FOR INLAND BRANCHES Dibrugarh University B.COM 1st Semester (CBCS) NOTES FINANCIAL ACCOUNTING UNIT -4




FINANCIAL ACCOUNTING
(CBCS)

UNIT -4

ACCOUNTING FOR INLAND BRANCHES



Q1. What is Branch and Branch Accounting?
Ans: Branch: A business may be and generally is split into so many parts or divisions. If the various divisions are located in different places of the same town or in different towns, they are known as branches. A branch is a separate segment of a business. The head office controls the activities of various branches. The accounting work that may be done at the branches will depend on the decision made by the head office. Hence, it is necessary to maintain accounts in such a manner that the profit or loss made at a branch is easily known.

Branch accounting: Branch Accounting is the process through which the accounting system of a branch is maintained. 

Q2. What are the objectives of Branch Accounting?
Ans: A business firm establishes branches for the purpose of marketing the products and services. The parent firm is always interested to know the trading results of its branches. For this purpose, branch accounts are kept.

The main purpose / objectives of branch accounts are as follows:
a. Branch account helps to know the profit or loss of each branch.
b. It enables the head office to know the financial position of each branch.
c. It shows the requirements of goods or cash for each branch.
d. Branch account is the basis and helps the head office to control the activities of branch.
e. Suggestions and improvements are based on the branch accounts, which is a diagnostic.

Q3. What are the different types of Branch?
Ans: From the accounting point of view, branches may be classified into:
a. Dependent Branch or Branch not keeping full system of accounting.
b. Independent Branch or Branch keeping full system of accounting.
c. Foreign Branch.

Q4. Write short notes on:
1. Dependent Branch: Dependent branch means a branch that receives goods only from the head office sells both for cash and credit and remits all the cash collected to head office, the expenses of the branch being met by remittances from the head office. Books of accounts relating to such branch also will be maintained by Head Office.
Accounting in respect of dependent branches:
In case of a dependent branch, the head office may keep accounts of the branch account to any of the following systems:
i. Debtors System
            ii. Stock and Debtors System
            iii. Wholesale System
            iv. Final Account System

2. Independent Branch:
Independent branches are those branches that are allowed to make purchases themselves, make sales both for cash and credit and carry on their work in an autonomous manner. Such branches usually maintain their own books of account. These branches prepare a trial balance, Trading and Profit & loss account and a Balance sheet at the end of the year. The results of the branch and the head office are integrated at the end of the financial period.

The main features of independent branches:

a. They need not depend on the head office for their requirements of supplies of goods. They can make purchases themselves.

b. They can sell goods only for cash and credit at any price they consider profitable.

c. They need not remit the money received by them from cash sales and debtors to the head office periodically. They can retain the funds and meet their day-to-day expenses out of these funds.

d. They keep a complete set of books for recording their transactions. So, they can prepare their own Trial balance, Trading and profit & loss account and Balance sheet.

e. However, as they are ultimately responsible to the head office, at the end of every financial period, they are required to submit a copy of their Trial Balance to the head office.

3. Cash-in-transit: If cash is sent by the branch and is still in transit on the day of closing, branch will pass the following entry to make the necessary adjustment:

Cash-in-transit Account                        Dr
To Head office Account

If cash sent by branch is still in transit and the entry for adjustment is to be passed in the head office books, the entry will be:

Cash-in-transit Account                        Dr
            To Branch Account

Cash-in-transit is an asset and will be shown in the Balance sheet.     

4. Goods-in-transit: If goods are sent by the head office and are still in transit, the head office will pass the following entry on the date of closing:-

Goods-in-transit Account                     Dr
            To Head office Account

The rule that the party makes the original entry should also pass the adjustment entry is not a hard and fast rule. But normally such goods are to be shown either on both sides of the branch accounts or will be ignored totally while preparing branch accounts.

5. Inter-Branch Transactions: Where transactions take place between branches themselves, it will facilitate matters if a branch considers all transactions with other branches as if these are with head office. If the head office has many branches and there is a possibility that some branches may supply goods or sent cash to other branch, such transaction among other branches are called “Inter branch transactions”. Suppose, Kanpur branch sends goods to Agra branch, the various entries to be passed will be as follows:-
In Kanpor Books-

Head office Account                                     Dr
            To Goods supplied to Branch Account

In Agra Books-

Goods received from Head Office Account    Dr
            To Head Office Account

If each branch has to maintain accounts of all other branches, the ledger may become unwieldy. The head office will, of course, keep accounts of all branches and will also record inter-branch transactions. If, therefore, goods are supplied by Kanpur Branch to Agra Branch, the head office will pass the following entry:-

Agra Branch Account                          Dr
            To Kanpur Branch Account

6. Depreciation on Fixed assets: There is no specialty if the accounts of branch fixed assets are maintained in the branch books. But if the accounts of such assets are maintained in head office books, the entry in respect of depreciation will be:

Branch Account                                               Dr
            To Branch Fixed assets Account

The branch will be debited because the branch uses assets. In the branch books, the entry will be:

Depreciation Account                          Dr
            To Head office Account

The effect of both the entries combined is to debit Branch Profit and Loss Account (for depreciation) and credit the Branch Fixed assets.

Q4. What are the differences between Independent Branch and Dependent Branch?
Ans: Following are the differences between Independent Branch and Dependent Branch:

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