Classwork Series and Exercises { Financial Accounting – SS3}: Branch Account

Financial Accounting, Week 6

Topic: Branch Account

Contents

• Introduction to branch Account
  
• Division of branch Accounting
• Pricing method

Branch Account

A branch can be defined as a small part of the business operating with some degree of independence. Branch account takes into consideration the entries of transaction in the books of an organization with different branches.

The system of accounting to be employed will depend on the nature of trade,location and degree of control exercise by the head office.the head office must be duly furnished with the transactions of the business through the presentation of financial result.

Division of Branch Accounting

Branch accounting can be divided into two different types namely;

• Where the head office keeps the account.
• Where the branches keep separate accounts

Where the head office keeps the account

The head office does all the buying and the branch simply does the selling. Here,the accounting for the branches is done by the head office.this is common in large-retail chain store.the branches will receive goods from the head office at a selling price and the branches as a matter of necessity must produce the stock or cash to cover the value of goods received.

Pricing Method

There are three different pricing methods which are used for charging goods to branches;

• At cost price
• At cost plus percentage
• At selling price,

At cost price: the head office can charge goods out to the branches at cost price, this method is good when the goods are of perishable nature or there are difficulties in determining the selling price, the exact result of operation can be ascertained when the cost price is used. It is disadvantageous because the check imposed by selling price system is not available.

At selling price method: Goods can also be charge to the branch at the selling price,the price will be fixed by the head office. The method is usually adopted when the goods are sold at specific price,this method is not good for perishable goods.The advantage is that the head office can keep an effective check on the stock issued to the branch.

At cost plus a percentage: this is the most effective method of charging goods to the branch; under this pricing method,the goods will be charged to the branches at cost plus a fixed percentage. This method can provide a reasonably reliable check upon the cash and stock at the branch and the profit will be disclosed by the accounts profit and loss account. Some items like cash sales,credit sales,cash remitted,sundry expenses from taking,cash in transit must be shown at the same figures under the two columns.

Accounting Entries

Two methods of Accounting are that can be used are:

1. Double column method otherwise called memorandum column
2. Branch adjustment method

Double column method or memorandum account

Under this system,there is no need for separated branch stock and branch adjustment accounts. The two accounts can be combined into memorandum or double column account. The branch stock will be ruled with two columns

One column records transaction at cost and the other column at invoiced price.the entries in the invoice price form no part of the double entry but are memoranda just for checking of stock.the following accounts are prepared

Branch stock accounts with double column

Goods sent to branch accounts

Profit and loss account.

Format of memorandum branch Account

	Invoiced price	Cost price		Invoiced price	Cost price
Stock at start	X	X	Return to head office	x	X
Goods sent to branch	X	X	Credit sales	X	X
Gross profit	X	x	Cash sales	X	X
			Cash stolen	X	X
			Expenses paid out of takings	X	X
			Normal loss	X	X
			Stock at close	X	X

The invoiced column must be balanced except for stock deficiencies, whereas the difference between the cost price column will give the gross profit to be transferred to the profit and loss account. Some items like cash sales,credit sales,cash remitted,sundry expenses from taking,cash in transit must be shown at the same figures under the two columns.

Format of goods sent to branch account (cost price)

Dr                                                                                                                                             Cr

Returns to branch                           x                                                Branch stock account           x

Head office trading account         x

X

Profit and loss account format

Branch stock account:

Sundry expenses                                  x                                           Gross profit                         x

Stock efficiency at cost price               x

Cash stolen                                          x

Net profit                                                x                                                                                                           x

Branch adjustment method

Under this system the profit loading will be taken to a separate account called “branch adjustment account” the following account will be prepared

Branch stock account:this must be shown in the invoiced price

Branch adjustment account,the profit loading will be posted to the account.it can equally be referred to as “branch mark-up account”

Goods sent to branch account,this must be shown at cost price.

Debtors account

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