Branch A/cs
BRANCH ACCOUNTS
Introduction
They arise where large business enterprises operate retail outlets away from their head office
in different localities of the country, region, continent or the world.
The main office of the business is its head office and other outlets are regarded as branches.
The head office procures the premises and physical resources needed for the branch to
become operational.
It also controls to some varying degrees, the operations of the branches.
The major aim of branch accounts is to exercise control over the branches and to avoid any
irregularities.
Branch profitability is ascertained, stock and cash controls are also initiated.
Accounting records and branches
There are 2 methods of maintaining accounting records of branches
1.
The head office keeps all the accounting records along with those of its operations.
2.
Branches individually maintain their own financial accounts and periodically submit certain
information from them to enable the accounts for the business as a whole to be prepared.
Usually a trial balance is submitted to the head office at the end of the year.
From the above, branch accounts can be categorized into two;
i)
Centrally controlled branches
ii)
Autonomous branches
Centrally controlled branches
Here, all the accounting work is maintained at the head office.
Stock is purchased centrally and distributed to the branches
All the affairs and trading policies of the branch are controlled by the head office.
Autonomous branches
Most of the accounting work is done at the branches.
Branches operate with some degree of independence.
Most stock is purchased locally.
Note: If the head office maintains all the accounts, they are meant to;
a)
Identify the level of sales and expenses for each branch and hence the profit made by
each branch.
b)
To record transactions showing charges in assets, liabilities and capital.
c)
To control any irregularities in sensitive assets like stock and cash
Accounting for centrally controlled branches
In this case goods sent to the branches may be recorded at cost or at selling price (Accounting for
goods sent to branches at cost is different from accounting for goods sent at the selling price).
The head office opens up the following accounts separately for each branch;
Branch stock A/C. Serves the purpose of branch trading A/C. It is also used to determine
the gross profit / loss of the branch
Branch debtors A/C. Records credit sales made by the branch.
Goods sent to branch A/C. Records the cost of goods sent from the head office to the
branch(s) during the period.
Branch cash A/C. Records cash transactions made at the branches
Branch expense A/C. Records all expenses incurred by the branch.
Branch profit & Loss A/c.
Other accounts as necessary.
BBAII-AccII_December2016 Examinations
Page 1
Branch A/cs
Page 2
Branch A/cs
Page 3
Branch A/cs
42,600,000
120,000,000
19,700,000
124,000,000
45,000,000
120,000,000
5,000,000
740,000
100,000,000
500,000
1,000,000
Fred Mutesasira _ Lecturer
Page 4
Branch A/cs
Page 5
Branch A/cs
Autonomous Branches
Most work is done by the branch Accountant who maintains a complete set of accounting
books.
- These branches operate with a high degree of independence
- Branches are allowed to purchase most of their stock from the local markets.
- The branch Accountant prepares books of A/cs, close off ledger A/cs at the end of the trading
period and extract a trial balance that is sent to the head office.
- At the head office, the Accountant incorporates the trial balance into the financial statements of
the whole business.
- The relationship between the head office and the branch is that of debtor- creditor although
the head office provides all necessary capital.
- The following need to be given emphasis when accounting for autonomous branches;
A. Current Accounts; they help to monitor the degree of debt between the two parties;
Branch current A/c; maintained in H/O books to record all transactions between the two parties.
The H/O treats the branch as a debtor and therefore this A/c must have a debit opening balance
and it is debited with the following;
Goods sent to branch
Expenses of branch paid by H/O
Branch profit.
The A/c is credited with the following;
Cash received from branch
Goods returned by branch
The balance c/d represents the amount the branch owes the Head office at the end of the year.
Head office current A/c; maintained in branch books to record all transactions between the two
parties.
The branch treats the H/O as a creditor and therefore this A/c should have a credit opening
balance. The A/c is debited with the following;
Cash sent to H/o
Goods returned to H/O
The A/c is credited with the following;
Expenses of branch paid by H/o
-
BBAII-AccII_December2016 Examinations
Page 6
Branch A/cs
Goods sent
3,000
BranchUgx000
Goods received
2,800
2,600
2,500
500
500
Branch profit
800
Your required to prepare the head office and branch current Accounts and reconcile them
Illustration 5
Muyindi Shppers ltd operates a branch in Jinja with a head office in Kampala. The trial balance
prepared as at 31st December, 2015 revealed the following position. (Amounts in U.Shs000)
Details
Head Office
Branch
Dr.
Cr.
Dr.
Cr.
Share capital
520,000
Share premium
80,000
General reserves
60,000
Profit & Loss A/c
110,000
Debtors /Creditors
95,000
70,000
29,400
14,400
H/O Current A/c Balance
103,000
Good will at cost
150,000
BBAII-AccII_December2016 Examinations
Page 7
Branch A/cs
350,000
100,000
90,000
20,000
40,000
20,200
7,200
97,000
29,800
2,000
510,000
459,400
308,000
120,000
10,800
21,000
32,800
30,800
5,200
1,000
297,000
399,400
1,000
4,200
2,800
62,000
1,637,600
1,637,600
21,000
549,600
549,600
Additional information;a) All goods sold by the branch are supplied from the head office at cost plus 10%. At 31st
December, 2015, goods at invoice price of U.Shs11, 000,000 were in transit to the branch.
b) The branch deposited U.Shs6, 000,000 on behalf of the head office in the local branch of the
head office bank on 31st December, 2015. No record of this transaction had been made in the
head office books.
c) Inventory at 31st December excluding goods in transit were values as follows;Head office at cost
U.Shs109, 000,000
Branch at Mark up
U.Shs 35,200,000
d) The Business its Fixed Assets at 10% per annum on straight line Basis.
Required
Prepare the companys income statement for the head office, branch and combined to show
the financial performance for the year ended 31st December, 2015.
ii. Prepare the companys combined statement of financial position as at 31st December 2015
iii. Reconcile the head office and branch current accounts as at 31st December,2015
i.
BBAII-AccII_December2016 Examinations
Page 8