Under the Debtors System, the profit or Joss can be found out by preparing a Branch Account in the books of Head Office. The Branch Account has been treated as a customer, a personal account in an impersonal name. This type of accounting treatment works well in small Branches. When authorised to make credit sales also, the Debtors System proves inadequate. A detail of credit sales remains unaccounted in this system. To overcome this, Stock and Debtors System has been devised.
Under Stock and Debtors System, the Head Office maintains several accounts relating to each Branch.
The following are the accounts to record the branch transactions:
(A) When Goods are Supplied at Cost:
- Branch Stock Account (Real Account):
This account is a record of transactions relating to goods and discloses the gross profit or loss of a branch. Head Office can have effective control over the Branch stock.
- Branch Debtors Account (Personal Account):
This account is maintained to keep the transactions relating to Branch Debtors.
- Branch Expense Account (Nominal Account):
This account discloses all branch expenses and losses incurred by the Branch.
- Branch Profit and Loss Account (Nominal Account):
This account incorporates the gross profit from Branch Stock Account and expenses from Branch Expense Account. Its balance represents the net results.
- Goods Sent to Branch Account is prepared to know the goods supplied to and returns received from the Branch.
- Branch Cash Account reveals all the cash transactions with Branch.
(B) When Goods are Supplied at Invoice Price:
- Branch Stock Account:
This account is maintained to record the transactions of goods at invoice price. This account will not disclose profit or loss, but discloses shortage, surplus or closing stock of goods.
- Branch Adjustment Account:
This account is kept for finding out gross profit made at the Branch. All loadings in the goods sent to the Branch, Opening Balance, Closing Balance, Returns from the Branch, apart from shortages and surpluses etc., are recorded in this account.
- Branch Debtors Account,
- Branch Expense Account,
- Goods Sent to Branch Account, and
- Branch Profit and Loss Account are explained above.