branch accounting debtors method

Accounting for BranchesDebtors or Direct Method

Mahesh Chandra SharmaAssociate Professor

Department of CommerceShaheed Bhagat Singh Eve. College

(University of Delhi) India

Brach AccountingA business firm may open branches in the same city or in

other cities of the country to expand its business.

Branches are controlled by a central office, often called Head Office (HO).

Branch accounting is concerned with recording trading transactions at branches, transactions between the Head Office and a Branch and ascertaining profits earned or loss incurred by a branch.

Types of Branches

Types of Branches

Domestic or Home Branches (Branches within the country)

Dependent Branches Independent Branches

Foreign Branches(Branches outside the

country)

Dependent BranchesThese branches sell only those goods which are

supplied by the HO. Goods supplied to branches for sale may be invoiced

at (a) cost, (b) selling price or (c) at invoice price All branch expenses are directly paid by the HO.Branch managers may be allowed to incur petty

expenses out of the petty cash supplied by the HO.Branches are allowed to sell goods on cash basis. Some

branches may be allowed to sell goods on credit basis.Branches are instructed to remit the amount of cash

sales and collection from debtors to the HO on daily basis.

Accounting for Dependent Branches

Accounting by BranchesSuch branches do not maintain complete accounting for their transactions, except few essential books such as Cash Book, Sales Book, Stock Register, etc.

Accounting by HOAccounts for branch transactions are maintained in HO books. Branches supply the necessary information to the HO.

Accounting Methods for Dependent Branches

Debtors or Direct MethodStock and Debtors MethodFinal Account MethodWholesale Branch Method

Note: In this presentation Debtors Method has been explained. For other methods, see my other presentations.

Debtors or Direct Method

Under this method, HO opens only one account for every branch, called “Branch Account”.

Branch Account is a combination of Personal Account (of a Branch as a debtor) and nominal account (as it is prepared to ascertain profit or loss made by the Branch).

Debtors Method: Journal Entries in the Books of Head Office

Date Particulars Amt. (Dr.)

Amt. (Cr.)

(1) For recording opening balances of assets at the Branch (for example Branch at Agra)

Agra Branch A/cDr.

Xx

To Branch Stock A/c * X xTo Branch Debtors A/c X x

To Branch Cash /Petty Cash A/c X xTo Branch Fixed Asset A/c** X x

* Branch stock may be recorded at cost or invoice price.

** Separate Account for each fixed asset by its name like, Furniture, Computer, etc.

Journal Entries in the Books of HO (Contd.)Date Particulars Amt.

(Dr.)Amt. (Cr.)

*Note:

Branch Stock may be recorded at Cost or at Invoice Price. If it is recorded at Invoice Price, then for loading (Invoice Price − Cost Price) on opening stock, a following entry will be passed.

(2) Stock Reserve A/cDr.

Xx

To Agra Branch A/c X x

(For loading on opening stock)

(3) For recording opening balance of branch liability, if any:Agra Branch A/c

Dr.Xx

To Branch Liability A/c Xx


(Dr.)Amt. (Cr.)

(4) For goods supplied by HO to Branch at Cost or at Invoice priceAgra Branch A/c

Dr.Xx

To Goods Sent to Branch A/c Xx

Note: If Goods are supplied by HO to Branch at Invoice price, then for loading (Invoice Price − Cost Price):

(5) Goods Sent to Branch A/cDr.

Xx

To Agra Branch A/c Xx


(Dr.)Amt. (Cr.)

(6) When goods is returned by Branch to HO:

Goods Sent to Branch A/cDr.

Xx


Note: If Goods are supplied by HO to Branch are recorded at Invoice price, then for loading on Goods returned by Branch:

(7) Agra Branch A/cDr.

Xx

To Goods Sent to Branch A/c Xx

(8) For branch expenses paid by HO Xx

Agra Branch A/cDr.

Xx

To Bank A/c Xx


(Dr.)Amt. (Cr.)

(9) For cash remitted by HO to Branch for petty expenses

Xx

Agra Branch A/cDr.

Xx

To Bank A/c Xx

(10) Cash received from Branch

Bank A/c Dr. Xx


Journal Entries in the Books of HO (Contd.)Date Particulars Amt

. (Dr.

)

Amt.

(Cr.)

(11) For recording Closing balances of assets at the Branch :Branch Stock A/c *Dr.

Xx

Branch Debtors A/c Dr. Xx

Branch Petty Cash A/c Dr. Xx

Branch Fixed Asset A/c (After Depreciation)Dr.

Xx

To Agra Branch A/c X x

*Note:

Branch Stock may be recorded at Cost or at Invoice Price. If it is recorded at Invoice Price, then for loading (Invoice Price − Cost Price) on Closing stock, a following entry will be passed.


(Dr.)Amt. (Cr.)

*Note:

Branch Stock may be recorded at Cost or at Invoice Price. If it is recorded at Invoice Price, then for loading (Invoice Price − Cost Price) on Closing stock, a following entry will be passed.

(12) Agra Branch A/cDr.

Xx

To Stock Reserve A/c X x

(13) When Branch Account discloses a profit (Balancing figure on Debit side):Agra Branch A/c

Dr.Xx

To General Profit & Loss A/c X x

Note: In case of loss, the above entry shall be reversed.


(Dr.)Amt. (Cr.)

(14) To close the “Goods Sent to Branch A/c”:

Goods Sent to Branch A/cDr.

Xx

To Trading A/c X x

Goods-in-TransitDate Particulars Amt.

(Dr.)Amt. (Cr.)

Sometimes Goods sent by HO to branch is not received by the branch at the time closing accounts. Such goods is called ‘Goods-in-Transit”. The HO will pass the following entry for it:Goods –in-Transit A/c Dr. Xx

To Branch A/c X x

Next Year: The above entry is reversed.Branch A/c Dr. Xx

To Goods –in-Transit A/c X x

Branch Account at Cost (Format)Dr. Cr.Particulars Amoun

tParticulars Amt.

To Balance b/d By Balance b/d Br Stock Branch LiabilityBr DebtorsBr Cash/Petty Cash

By Goods Sent to Branch A/c (Goods returned by Br.)

Br Fixed Assets By Bank (Cash remitted by Br.)

To Goods Sent to Branch A/c

To General P & L A/c (Loss)

To Bank (Cash remitted for expenses)

By Balance c/dBr Stock

To Bank (Cash remitted for Petty Expenses

Br DebtorsBr Cash/Petty Cash

To General P & L A/c (Profit) Br Fixed AssetsTo Balance b/d

Branch Liability

Branch Account at Invoice (Format)When Goods Sent to Branch is recorded at Invoice price, following additional entries are to be madeDr. Cr.Particulars Amou

ntParticulars Amt.

By Balance b/d Stock Reserve

To Goods Sent to Branch A/c

(Loading on Goods returned by Branch)

By Goods Sent to Branch A/c

(Loading on Goods Sent to Branch)

To Balance c/d Stock Reserve

Finding Missing FiguresWhen any information relating ‘Goods Sent to Branch’ , ‘Branch Stock’ and Branch Sales is missing, a Memorandum Branch Stock A/c should be prepared.

Memorandum Branch Stock A/c (At Invoice Price)Dr. Cr.Particulars Amou

ntParticulars Amt.

To Balance b/d (Op.) By SalesTo Goods Sent to Branch A/c

Cash Sales

To Sales Return Credit SalesTo Surplus (BF) By Goods Returned to HO

By Normal Loss of GoodsBy Abnormal Loss of GoodsBy Shortage of Goods (BF)By Balance c/d (Clo.)

Finding Missing Figures (Contd.)

Notes to Memorandum Branch Stock A/c:If out of the abovementioned items, only one

item is missing, then it will be balancing figure.

If all the abovementioned items are given, then balancing figure on the Debit side will be assumed “Surplus” and balancing figure on the Credit side will be assumed “Shortage of Goods.”

Any type of Normal or Abnormal Loss, Shortage or Surplus is not recorded in the Branch A/c.

Finding Missing FiguresWhen any information relating ‘Branch Debtors, Credit Sales, Cash Received from Debtors is missing a Memorandum Branch Debtors A/c Should be prepared.

Memorandum Branch Debtors A/c Dr. Cr.Particulars Amou

ntParticulars Amt.

To Balance b/d (Op.) By Cash ReceivedTo Credit Sales By Sales Return

By Bad DebtsBy AllowancesBy Discount AllowedBy Balance c/d (Clo.)

XXX XXX

Finding Missing Figures (Contd.)

Notes to Memorandum Branch Debtors A/c:If out of the abovementioned items, only one

item is missing, then it will be balancing figure. For example : Opening or Closing Debtors, Credit Sales, Cash received from Debtors, etc.

Bad Debts, Discount Allowed, Allowances are not recorded in Branch A/c.

Finding Missing FiguresWhen any information relating ‘Petty Cash’ or ‘Petty Expenses’ is missing a Memorandum Branch Petty Cash A/c should be prepared.

Memorandum Branch Petty Cash A/c Dr. Cr.Particulars Amou

ntParticulars Amt.

To Balance b/d (Op.) By Petty Expenses paid

To Cash sent to Branch for Petty Cash

By Balance c/d (Clo.)

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