10-1

BRANCH ACCOUNTS

by
by
Dr.
Dr. Helena
Helena Thomas
Thomas
 Learning
Learning Objectives
10-2
Objectives
 Define branches and the reasons for their use in
supporting business operations.
 Identify and explain different types of branches and
their distinguishing features ……
 Identify and explain different types of accounting
systems used to maintain accounting records and
financial reports for different types of branches.
 Given samples of questions and problems,
demonstrate how they can be solved in terms of
preparing relevant accounting records and financial
reports of a business that has adopted branch mode
of business operations.
 10-3
BRANCHES – DEFINED
 Branch - segment of an enterprise normally controlled by
head office being located in different geographical
position. It is different from department, as this is usually
located under the same roof.
 Branches can be located within a national borders [Home
branches/national branches/inland branches] or in
different/foreign country - called a foreign branches.
 Why use branches?
 The main reason for companies to establish branches is
to enhance the company’s ability to compete effectively
in a globalized business world….
 Branches enable the company to cope with stiff
competition resulting from rapid growth in trade and
commerce at local and global levels.
 10-4
Why branches
Focusing on advantages or associated benefits
point of view, company may be motivated to adopt
the use of branches to support its business
operations due to different advantages we
observed in management accounting when
discussing issues of decentralized organizational
structure.
Remember we had different types of responsibility
centres namely Cost Centres, Revenue Centres,
Profitability Centres and Investment Centres
studied in managerial accounting II – revisit them.
 10-5
Types of Branches
 Different ways of classifying branches
1. By national geographical boarders: as already noted: (i)
Foreign branches and (ii) Home or inland branches….
2. Based on the responsibility of maintaining books of
accounts: (i) Dependent Branches and (ii) Independent
Branches
 Dependent Branch – does not maintains separate books
of accounts – HoD maintains all important financial
accounts of all the branches along with those of its own
business operations …..
 Its called a “Centralized Accounting System” usually
adopted by relatively large organisations with smaller
branches in terms of resources under their control.
 10-6
Types of Branches
 However, dependent branch might maintains
minimum accounting records like debtors’ ledger and
stock ledger. The former is useful in finding out the
money due from debtors if the branch is authorized to
sell goods on credit while the latter provide info about
the movement of goods received from HO and the
balance of stock in hand …..
 Independent Branch – maintains a complete set of
books of accounts about its business operations with
HO and other parties. Periodically, the branch will be
required to submit some info to the HO to enable it
prepare financial accounts/reports for the business as
whole.
DETAILED OVERVIEW OF DEPENDENT
BRANCHES AND ITS ACCOUNTING SYSTEM
 Detailed Overviews:
1. Generally all inventories are purchased and supplied to the
branch by the HO. However, sometimes the branch may be
allowed to make purchase from local parties for which the
payments are made directly by the HO….
2. Cash received by the branch from its debtors/on account of
cash sales, is daily remitted to the HO. Usually, the HO will
open a bank account in a local bank where all cash
collections will be deposited by the branch.
3. Furthermore, documentation of branch credit sales, returns
and so on, will be forwarded to the HO for reconciliation
purposes ….
 10-8
DETAILED OVERVIEW OF DEPENDENT
BRANCHES and ITS ACCOUNTING SYSTEM
4. All branch expenses are paid directly by the HO by
using cheques – therefore, branch will submit a
summary of branch expenses to the HO in order to be
paid during a particular accounting period. ……

4. In order to meet petty expenses of the branch, an

imprest system may be used where the branch is
provided with petty cash from the HO.…the branch
keeps records of the petty expenses in the Petty Cash
Book … [Remember introductory principles of
accounting course in your first year]
 10-9
DEPENDENT BRANCH - ACCOUNTING SYSTEM
 HO may use different types of accounting systems to
maintain its branch accounts including (1) Debtors System
(2) Stock and Debtors System (3) Final Account System,
and (4) Wholesale Branch System
 Debtors System: more appropriate for small sized branches
- in this case, the HO maintains one important account
called Branch Account for each branch in the HO Ledger.
All transactions with a particular branch will be recoded in
its specific branch account …….
 Branch Account its like any Nominal Account – a
temporary account used to track revenue, expenses, gains
and losses of a branch ….this account will be closed at the
end of each accounting period, and its balance transferred to
a permanent account e.g. equity/retained earnings.
 10-10
Structure and Contents of Branch Account
 It is prepared in such a way to disclose branch’s operational
results (Profit or Loss) at the end of accounting period.
 HO will send goods to Branch either at Cost Price or
Selling Price ……
 Accounting Entries for Branch Account:
 Debit the Branch Account with the following items:
Whatever the branch has at the beginning of the
accounting period [stocks, debtors, petty cash etc. less
any amount of any liability ….]
Whatever has been sent by the HO to the branch during
the accounting period [cash sent to meet branch various
expenses or cash for purchases made by branch from
outside parties.
 10-11
Structure and Contents of branch Account
Branch account is credited with the following
items:

Whatever the HO receives from the branch e.g. cash

remitted by branch on account of cash sales,
collections from debtors, goods returned by branch etc.

Whatever the branch has at the end of the accounting

period e.g. stock, debtors, petty cash, and other assets.
…
 Structure & Contents of Branch Account 10-12

Particulars TZS Particulars TZS

To Opening Balances By Opening Balances
Stock XX  Creditors XX
Debtors XX  Outstanding Expenses XX
Petty Cash XX
Furniture XX By Bank
Prepaid Expenses XX  Cash Sales XX
To Goods Sent to  Collections from XX
Branch A/C Debtors [For
Remittances]
 To Bank [For Expenses XX
or any Payment Made
by the HO on behalf of
the Branch]
 Structure & Contents of BR A/C ….Continued…
Particulars TZS Particulars TZS
To Bank By Goods Sent to Branch
A/C
For Expenses or any XX  Goods Returned by the XX
Payment Made by the Branch to HO or
HO on Behalf of the Returned by the
Branch Branch Debtors
Directly to the HO or
Sent to Other
Branches.

To Closing Balances By Closing Balances

Outstanding Expenses XX  Petty Cash XX
Creditors XX  Debtors XX
 10-14
Structure & Contents of BR A/C ….Continued…
Particulars TZS Particulars TZS
To Closing Balances By Closing Balances
 Furniture (At XX
Depreciated Value)

 Prepaid Expenses XX
To Profit (Transferred to XX By Loss (Transferred to XX
General P & L A/C) General P & L A/C)

XX XX
 10-15
Items to be Ignored When Preparing Branch A/C
 Under debtors’ system, NO separate records
/entry will be made/appear in the branch A/C
with regard to the following:
1. Credit Sales, Shortage/Surplus of Stock, Bad Debts,
Discount etc.
2. Depreciation of Fixed Assets ….
3. Petty Expenses ….
4. Sale of Fixed Assets
5. Amount Received From Insurance Company
 10-16
Branch A/C – Example 1
 Gunda & Sons Ltd have their HO in Dar Es Salaam and
Branch at Njombe Region. The following are the
transactions of the HO with Branch for the year ended 31st
Dec. 2018
Particulars TZS “000” TZS “000”
Stock at Branch as on 31.12.2017 30,800
Debtors at the Branch as on 31.12.2017 16,500
Petty Cash as on 31.12.2017 500
Goods Supplied by the Branch 151,200
Remittances from Branch:
- Cash Sales 10,500
- Realization of Debtors 157,740 168,240
 10-17
Branch A/C – Example 1… Cont..
Particulars TZS “000” TZS “000”

Amount Sent to Branch:

- Salary 7,440
- Rent 2,400
- Petty Cash 3,000 12,840
Stock at Branch as on 31.12.2018 23,150
Sundry Debtors at the Branch as on 31.12.18 50,460
Petty Cash as on 31.12.2018 750

Required:
Show the Branch A/C in the Books of the HO [i.e. Gunda & Sons Ltd]
 10-18
Gunda & Sons Ltd – Njombe Branch A/C
Particulars TZS “000” Particulars TZS “000”

1.1.2018: Balance b/d: Bank/Cash:

- Stock at Branch 30,800 - Cash Sales …...10,500
- Branch Debtors 16,500 - Debtors ……..157,740 168,240
- Cash 500
Goods Sent to Br. A/C 151,200 Balance c/d
Bank (Remittances): - Stock at Branch 23,150
- Salary ………….7,440 - Branch Debtors 50,460
- Rent ………........2,400 - Cash at Bank 750
- Petty Cash ……..3,000 12,840
Profit Transferred to
P&L A/C 30,760 _______
242,600 242,600
 10-19
Pricing of Goods Sent to Branch
 Goods may be sent to branch by the HO either at Cost
Price or a Price Higher than the Cost Price, which is
termed as Invoice Price ….
 Where goods are sent to the branch using invoice price
– it is important to make some adjustments [using
adjustment entries] to show any profit included in the
movement of goods from the HO to the Branch and vice
versa.
 Adjustments are also expected to determine the amount
of unrealized profit in the unsold stock/inventory
remaining with the branch as per IAS/IFRs that states
stock/inventory should be valued at cost or NRV,
whichever is low.
 10-20
Pricing & Example 2 on Branch Accounts…
 The difference between IP and cost price is known as loading
– it’s the name that will be incorporated when making
adjustments showing the amount of profit or loading - either in
goods sent to branch or those remaining with the branch i.e.
closing stock….

 Example 2
 The HO sent goods to its branch at cost plus 20%...
 Cost of goods sent by the HO to the Branch amounted to TZS
20,000,000/=........
 Branch returned goods of the invoice valued at TZS 6,000/=..
 Value of closing stock remained with the branch at the end of
the accounting period TZS 3,600/= …..
 10-21
Example 2 – Journal Entries in the Books of the HO
(i) Branch Account ………………Dr. 24,000
Goods Sent to the Branch A/C……..Cr. 24,000
Being Goods Sent to the Brach [at Invoice Price]
_____________________________________________
(ii) Goods Sent to the Branch A/C…... Dr. 6,000
Branch Account ...…………………. Cr. 6,000
Being Goods Returned by Branch [at Invoice Price]
_____________________________________________
(iii) Stock at Branch Account ………Dr. 3,600
Branch Account ……………………Cr. 3,600
Being Stock Held at the Branch [at Invoice Price]
 10-22
Example 2 – Journal Entries in the Books of the HO
(iv) Goods Sent to Branch A/C ……Dr. 3,000
Branch Account ………………………...Cr. 3,000
[(24,000 – 6,000) * 1/6]
Being Adjustment of Loading Included in Goods Sent
to Branch Account
(v) Branch Account ……………….. Dr. 600
Stock Reserve Account …………………Cr.
600
[3,600 * 1/6]
Being Adjustment of Loading Included in Closing
Stock
 Conversions Into/From Mark–Ups/Margins

Margin = Mark–Up / (1 + Mark – Up)

Mark–Up = Margin /(1 – Margin)

Class Activity:
Make a thorough review of Illustration
6.3 and 6.4 found in the handout given …
 10-24
STOCK AND DEBTORS SYSTEM
 Stock and Debtors system is generally used when the bra
nch are of relatively large size, and goods are usually
sent to the branch at pro–formal invoice price.

 HO maintains several central accounts [instead of just

one Branch Account] to exercise greater control over the
branch stock and other related expenses, including the
following:

• Branch Stock A/C,

• Branch Debtors A/C,
 10-25
Stock & Debtors Accounts ….Continued
3. Goods Sent to Branch A/C ….

4. Branch Cash A/C…..

5. Branch Expenses A/C….

6. Branch Adjustment A/C….

7. Branch Profit and Loss A/C ….

8. Branch Fixed Assets A/C….

 10-26
Example 3 [All Figures in TZS “000”]
The following reflect the business transactions between
Bongo Enterprises Ltd, the HO that is located in Dar and its
branch located in Songea Town for 3 months period ending
on 31st March, 2018:
Stock (at selling price) Jan. 1, 2018……………..26,700
Debtors, Jan. 1, 2018 ……………………………..1,400
Cash Sales ………………………………………..72,940
Cash Remitted to HO by Customers ……………..2,800
Goods Returned: by Branch to HO………………..1,170
By Credit Customers to Branch …….....570
By Credit Customers to HO ……...........120
Goods Transferred by Songea Br. to Njombe Br..…4,500
 Example 3 [All Figures in TZS “000”]….Continued
 Goods Issued to Branch by HO (at selling price)…78,300
 Bad Debts Written Off………………………………..150
 Cash Sales ………………………………………...72,940
 Cash Remitted to HO by the Branch ……………..72,000
 The amount due by credit customers on March 31, 2018
was TZS 960,000/= (at sales value of TZS 660,000/=) lost
in transit from HO to the Branch. Actual stock on that was
in agreement with the book figures. A claim was made on
the insurance company in respect of the lost stock and a
sum of TZS 500,000/= was accepted in full settlement.
 Required: Records in Journal & Ledger A/Cs, including
Bran. A/C; Bran. Debtors A/C; Bran. Adjustment A/C;
Bran P& L A/C and Goods Sent to Bran. A/C
 10-28
BRANCH STOCK A/C
Particulars TZS Particulars TZS
“000” “000”
Balance b/d 26,700 Cash (Sales) 72,940
Goods Sent to 78,300 Branch Debtors 3,200
Branch
Branch Debtors 570 Goods Sent to Bran. 1,170
A/C (Returns)
Goods Sent to Bra. A/C 4,500
(Transferred to Njombe
Bran.)
Bran. Adj. A/C 220
Branch P&L A/C 440
________ Balance c/d 23,100
 BRANCH DEBTORS A/C
10-29

Particulars TZS Particulars TZS

“000” “000”
Balance b/d 1,400 Cash Received 2,800
Branch Stock A/C 3,200 Branch Stock A/C 570
(Credit Sales) (Returns)
Goods Sent to Bran. 120
A/C (Direct Returns
of HO)
Branch P&L (Bad 150
Debts)
_____ Balance 960
4,600 4,600
 10-30
GOODS SENT TO BRANCH A/C
Particulars TZS Particulars TZS
“000” “000”
Branch Stock A/C 1,170 Branch Stock 78,300
(Returns) A/C
Branch Stock A/C 4,500
Branch Debtors A/C 120

Branch Adj. A/C 24,170

Purchases A/C
(Transfer) 48,340 _______
78,300 78,300
 10-31

BRANCH ADJUSTMENT A/C

Particulars TZS Particulars TZS
“000” “000”

Stock Reserve 7,700 Stock Reserve 8,900

(Closing Stock) (Opening Stock)

Branch Stock A/C 220 Goods Sent to 24,170

(Loading in Loss in Branch A/C
Transit)

Gross Profit Taken

to Branch P&L A/C 25,150 _____

33,070 33,070
 10-32
BRANCH P&L A/C
Particulars TZS Particulars TZS
“000” “000”
Branch Debtors A/C 150 Gross Profit 25,150
(Bad Debts)

Branch Stock A/C 440 Cash (Insurance 570

(Loss in Transit) Claim)

Net Profit Taken to

General P&L A/C

25,060 ______
25,650 25,650
 10-33
BRANCH CASH A/C
Particulars TZS Particulars TZS
“000” “000”

Branch Stock A/C 72,940 Cash A/C (HO Cash 72,000

A/C)

Branch P&L A/C 500 Balance c/d 1,440

73,440 73,440
 10-34

CASH A/C (HEAD OFFICE)

Particulars TZS Particulars TZS
“000” “000”

Branch Debtors A/C 2,800 Balance c/d 74,800

Branch Cash A/C 72,000

74,800 74,800