Branch Accounts

Introduction :

Large manufacturing and trading concerns operate at different places in the same country as well as in foreign countries through their own establishments for promoting sales and eliminating middlemen. The system of operating at several places through one's own establishments is called 'branch organisation'. The parent or the main establishment located at the main place of activity and which exercises control over the other establishments is called the Head Office, and the subsidiary establishments located at various places are called the Branches.

Need for Branch Accounting :

A concern which has branches is always interested in knowing the final results (i.e., the profits or losses) of its branches. (if the final results of the branches are good, they may be allowed to operate. If not, either some improvements will be made in their working or they will be closed down.) So, naturally, a suitable accounting system capable of indicating the final results of the branches is required to be adopted by a branch organisation.

Objectives of Branch Accounting :

The main objectives of keeping branch accounts are :

1. To know the final result (i.e., the profit or loss) of each branch separately.

2. To ascertain the real financial position of each branch.

3. To exercise proper control over each branch.

4. To ascertain and to meet the goods and cash requirements of each branch.

5. To meet the requirements of special acts. For instance, the Companies Act of 1956 requires that accounts should be kept by all the branches of a company for the purposes of audit.

Branch Accounting Procedure :

The branch accounting procedure to be adopted by a concern depends upon the size of the branches, the nature of the goods dealt in by them, degree of control desired to be exercised on them and the country in which the branches are located. Therefore, for the purpose of understanding the accounting procedure to be adopted for the branches. branches may be divided into three categories. They are "

1. Dependent Branches

2. Independent Branches

3. Foreign Branches