Branch Account: Definition, Format, Features, and Solved Illustration

Branch

A branch is a geographically separate unit of an enterprise that operates under the control of a head office and generally conducts the same activities as the main business. For example, the State Bank of India has branches in numerous cities across the country as well as abroad.

Branch Accounts

Branch accounts refer to the records of transactions related to branch operations whether they involve dealings with the head office, with external parties, or with other branches maintained in the books of the head office. To exercise effective control over branch activities, it is important to determine the profit or loss generated by each branch separately.

For this purpose, an appropriate accounting system must be adopted to record business transactions between the head office and its branches. The choice of accounting system depends on factors such as the size and nature of the branch and the level of control the head office wishes to maintain.

Types of Branch Accounts

Dependent Branches

Dependent Branches are branches that do not maintain their own independent set of books. They rely on the Head Office (HO) for most accounting and financial functions, and are therefore also known as agency branches.

Features of Dependent Branches

1. They rely on the Head Office for the supply of goods.
2. All branch expenses are directly paid by the Head Office.
3. To meet petty day-to-day expenses (e.g., conveyance, entertainment, stationery), the branch is provided with petty cash by the Head Office.
4. These branches generally sell goods for cash, but may also sell on credit if authorized by the Head Office.
5. Cash received from debtors or from cash sales is remitted daily to the Head Office or deposited into a bank account maintained in the name of the Head Office.
6. Such branches maintain only limited memorandum records, such as a cash book, debtors ledger, and stock register.

Accounting Procedure for Dependent Branches

In the case of dependent branches, the Head Office (HO) maintains branch accounts using any of the following methods:

1. Debtors (Direct) System
2. Final Accounts System
3. Stock and Debtors System
4. Wholesale Price System

1. Debtors or Direct System

Under this method, the Head Office opens one account for each branch, known as the Branch Account.

• The primary objective of this account is to ascertain the profit or loss of the branch.
• The Branch Account functions as a nominal account.
• This method is generally used for small-sized branches.
• All branch-related financial transactions are recorded in the books of the Head Office.

2. Final Accounts System

Under this system, the Head Office prepares:

• Branch Trading Account
• Branch Profit & Loss Account
• A more detailed Branch Account

This method offers a clearer and more comprehensive picture of the branch’s performance.

3. Stock and Debtors System

This system is adopted when the Head Office wishes to maintain strict stock control at the branch.  Instead of maintaining a single Branch Account, the HO opens multiple accounts to record various aspects of branch transactions:

• Branch Stock Account
• Branch Adjustment Account
• Branch Expense Account
• Branch Profit & Loss Account
• Branch Account

This method provides detailed information and better control over stock, expenses, and profitability.

4. Wholesale Price System

Sometimes the Head Office sells goods through its own retail branches in addition to selling goods to wholesalers. Under this system, goods are supplied to branches at wholesale price instead of cost or invoice price, enabling the Head Office to monitor branch efficiency and profit margin effectively.

Independent Branch

An independent branch is one that maintains its own complete set of books and follows a full accounting system. It operates as a separate business unit, recording all transactions in its own books, preparing its own trial balance, and preparing Trading Account and Profit & Loss Account independently.

After preparing its trial balance, the branch forwards a copy to the Head Office (HO). The HO then incorporates these figures into its own books to prepare a consolidated Profit & Loss Account and Balance Sheet for the entire business.

Independent branches typically:

• Do not depend on the Head Office for the supply of goods.
• Meet their own expenses from their own resources.
• Are not required to remit daily collections to the Head Office, unlike dependent branches.

Thus, an independent branch enjoys financial and operational autonomy while still forming part of the overall organization.

Difference Between Dependent Branch and Independent Branch

Basis of Difference	Dependent Branch	Independent Branch
1. Maintenance of Books	Does not maintain a full set of books; keeps only memorandum records.	Maintains a complete set of books and full accounting system.
2. Supply of Goods	Depends on Head Office for supply of goods.	Usually purchases goods on its own and does not depend on the Head Office.
3. Payment of Expenses	All major expenses are paid by the Head Office; petty cash may be supplied.	Branch pays its own expenses independently.
4. Recording of Transactions	Transactions recorded mainly in the Head Office books through the Branch Account.	Branch records all transactions in its own books and later sends the trial balance to the Head Office.
5. Cash Collection Handling	Cash collected is remitted daily to the Head Office.	Cash collections are usually retained and used for operations; remittance is not compulsory daily.
6. Autonomy	Operates with limited autonomy and decisions are largely controlled by HO.	Operates with greater autonomy in financial and business decisions.
7. Preparation of Final Accounts	Final accounts are prepared by the Head Office based on branch information.	Branch prepares its own Trading and P&L Account and sends results to HO.
8. Size of Branch	Suitable for small-sized branches.	Suitable for large-sized branches.
9. Objective of HO Accounting	To ascertain branch profit or loss through the Branch Account.	To consolidate results of branch with HO for overall financial statements.

Foreign Branches

A foreign branch is an independent branch located outside the home country. Since its operations take place in another nation, it maintains its books of accounts in the local foreign currency in which its transactions are conducted.

The foreign branch:

• Records all transactions in the currency of the foreign country.
• Prepares its own trial balance based on its books.
• Sends the trial balance to the Head Office (HO) for consolidation.

Before incorporating the foreign branch’s trial balance, the Head Office must convert all items into the home currency using appropriate exchange rates. Only after this conversion can the HO prepare consolidated final accounts for the entire business.

Format of Branch Account

Branch Account

Dr. (Particulars)	Amount (₹)	Cr. (Particulars)	Amount (₹)
To Balance b/d:		By Balance b/d:
– Stock	XX	– Creditors	XX
– Debtors	XX	– Bank Loan	XX
– Petty Cash	XX
– Furniture	XX
– Prepaid Expenses	XX
To Goods Sent to Branch	XX	By Bank A/c:
		– Cash Sales	XX
		– Cash Received from Debtors	XX
To Bank A/c:		By Goods Sent to Branch (Returned by Branch)	XX
– Rent	XX
– Cash Remittance	XX
To Provision for Bad Debts	XX	By Balance c/d:
To Balance c/d:		– Stock	XX
– Creditors	XX	– Debtors	XX
– Bank Loan	XX	– Petty Cash	XX
		– Furniture	XX
		– Prepaid Expenses	XX
To General Profit & Loss A/c (Profit) (Balancing Figure)	XX	By General Profit & Loss A/c (Loss) (Balancing Figure)	XX
Total	XXX	Total	XXX

ILLUSTRATION – BRANCH ACCOUNT

Given: Delhi Branch

Opening Balances (1 April 2024)

• Stock: ₹20,000
• Debtors: ₹15,000
• Petty Cash: ₹2,000
• Furniture: ₹10,000
• Prepaid Expenses: ₹3,000
• Creditors: ₹8,000
• Bank Loan: ₹12,000

Transactions During the Year

• Goods sent to Branch: ₹60,000
• Rent paid by H.O.: ₹12,000
• Cash sent to Branch for expenses: ₹8,000
• Cash sales by Branch: ₹25,000
• Cash received from Debtors: ₹20,000
• Goods returned to H.O.: ₹5,000
• Provision for Bad Debts: ₹1,000

Closing Balances (31 March 2025)

• Stock: ₹25,000
• Debtors: ₹12,000
• Petty Cash: ₹1,500
• Furniture: ₹9,000
• Prepaid Expenses: ₹2,500
• Creditors: ₹10,000
• Bank Loan: ₹12,000

Solution 

Branch Account

Dr. (Particulars)	Amount (₹)	Cr. (Particulars)	Amount (₹)
To Balance b/d:		By Balance b/d:
– Stock	20,000	– Creditors	8,000
– Debtors	15,000	– Bank Loan	12,000
– Petty Cash	2,000
– Furniture	10,000
– Prepaid Expenses	3,000
To Goods Sent to Branch	60,000	By Bank A/c:
		– Cash Sales	25,000
		– Cash Received from Debtors	20,000
To Bank A/c:		By Goods Returned to H.O.	5,000
– Rent	12,000
– Cash Remitted	8,000
To Provision for Bad Debts	1,000	By Balance c/d:
To General P&L A/c (Profit)	19,500	– Stock	25,000
To Balance c/d:		– Debtors	12,000
– Creditors	10,000	– Petty Cash	1,500
– Bank Loan	12,000	– Furniture	9,000
		– Prepaid Expenses	2,500
		– Creditors	10,000
		– Bank Loan	12,000
Total	1,67,500	Total	1,67,500

Profit transferred to General P&L A/c = ₹19,500

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