Independent Branches are those which make purchases from outside, get goods from Head Office, supply goods to Head Office and fix the selling price by itself Thus an independent Branch enjoys a good amount of freedom like an American Son.
Characteristics of an Independent Branch:
- Independent Branch keeps a complete set of books. Such Branch gets goods from Head Office and from outside parties. It has its own Bank Account. Thus, the Branch keeps frill system of accounting.
- It prepares its own Trial Balance, Trading and Profit and Loss Account and Balance Sheet. Copies of these statements are sent to Head Office for incorporating in the Head Office Books.
- The books contain an Account called “Head Office Account” or “Head Office Current Account” which is credited with everything received from the Head Office and debited with everything sent to Head Office. That is, all transactions relating to Head Office are recorded in this Account. The Head Office Current Account is thus a Proprietorship Account (i.e. Capital Account).
In-spite of the independent status, the Branch cannot function without resources, and the resources, specially at the initial stage, are provided by the Head Office. Thus, the investments made by the Head Office seen from the Head Office Account are a personal Account in nature.
Similarly, the Head Office in its books opens an Account “Branch Current” Account, which is also a running account between the Branch and the Head Office and incorporates all the transactions between Branch and the Head Office.
A special feature is that the Head Office Current Account in the books of Branch and Branch Current Account in the books of Head Office are maintained on a reciprocal basis.
The balance of these Accounts on any date will be equal to the difference between the assets and liabilities at the Branch on that date. The Branch Current Account in the Head Office books and Head Office Current Account in the Branch books show the same but opposite balance on a particular date.
- There may be inter-branch transactions. That is, goods transferred by one Branch to another Branch of the same Head Office. Such entries have been explained later.
- On receipt of the accounts and statements by the Head Office, the Head Office reconciles the balances, which is shown in Head Office Account in the Branch books with the Branch Account in Head Office books. Differences are reconciled. This is dealt with separately.
- For goods supplied by head office to branch:
Branch book:
Goods supplied by head office A/C………Dr.
To Head office A/C
(Being receipt of goods)
Head office book:
Branch A/C…………..Dr.
To goods supplied to branch A/C
(Being goods sent to branch)
- For cash remitted by head office to branch:
Branch book:
Cash A/C…………..Dr.
To head office A/C
( Being cash received)
Head office book:
Branch A/C ……………..Dr.
To cash A/C
(Being cash sent to branch)
- For goods returned by branch:
Branch book:
Head office A/C…………Dr.
To goods supplied to head office A/C
(Being goods return to head office)
Head office book:
Goods supplied from branch A/C…………Dr.
To Branch A/C
(Being goods returned from branch)
- For cash remitted by branch to head office:
Branch book:
Head office A/C………….Dr.
To cash
(Being cash sent to head office)
Head office book:
Cash A/C……………..Dr.
To Branch A/C
(Being cash received from branch)
- For assets purchased by branch on behalf of head office:
Branch book:
Head office A/C ………………Dr.
To cash A/C
(Being purchase of assets)
Head office book:
Branch assets A/C………….Dr.
To branch A/C
(Being assets purchased by branch)
- For depreciation charged:
Branch book:
Depreciation A/C ……………Dr.
To Head office A/C
(Being depreciation on branch fixed assets)
Head Office book:
Branch A/C……………….Dr.
To branch assets A/C
(Being depreciation of branch fixed assets)
- For expenses incurred by head office
Branch book
Expenses A/C…………..Dr.
To head office A/C
(Being expenses incurred by head office)
Head office book:
Branch A/C………………….Dr.
To profit and loss A/C
(Being expenses incurred for branch)
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