DIFFERENCE BETWEEN DEPARTMENTAL AND BRANCH ACCOUNTING

BRANCH ACCOUNTING NOTES FOR BCOM

BRANCH ACCOUNTING NOTES FOR BCOM

QUESTION: Explain the ‘Stock and Debtors System’ of Branch Accounting along with its Journal Entries.

STOCK AND DEBTORS SYSTEM

This method is also adopted to find out the profit or loss made by the branch. This method is generally adopted when the goods are dispatched to the branch at the selling price which the branch is not authorized to vary. Under this method, the following accounts are opened:

BRANCH ASSETS ACCOUNT: Individual assets accounts are opened for each kind of asset. Example: branch cash account, branch debtors’ account, branch furniture account etc.

BRANCH EXPENSES ACCOUNT: This account is debited with all the expenses of the branch like rent, salaries, advertisement etc. this account is closed by transferring to the branch adjustment account.

BRANCH STOCK ACCOUNT: This account is prepared to find out the surplus or shortage of stock at the branch. This account is featured as:

  • This account is prepared at invoice price.
  • Opening stock is posted at the debit side of this account.
  • Goods sent to branch is also recorded at the debit side of this account.
  • Goods returned to head office and closing stock is shown at the credit side of this account.
  • The excess of debit over credit is shortage.
  • The excess of credit over debit is surplus.

BRANCH ADJUSTMENT ACCOUNT: This account has two parts. The first part is prepared like Trading Account. It is debited with

  • stock reserve account (profit element in  closing stock)
  • profit element in shortage.

This account is credited with

  • stock reserve account (profit element in  opening stock)
  • profit element in surplus.
  • Profit element in goods sent to branch.

The excess of debit over credit is gross loss and excess of credit over debit is gross profit.

In the second part, the branch expenses account and the cost of shortage or surplus is shown- the shortage on the debit side and the surplus on the credit side. The balance of this account indicates either profit or loss.

JOURNAL ENTRIES

WHEN GOODS SENT TO BRANCH
Branch Stock A/c    Dr.
    To Goods sent to branch A/c
WHEN SALES ARE MADE AT THE BRANCH
On cash basis
Cash A/c   Dr.
     To Branch stock A/c
On credit basis
Branch Debtors A/c    Dr.
     To Branch Stock A/c
WHEN CASH IS RECEIVED FROM DEBTORS
Cash A/c    Dr.
     To Branch debtors A/c
FOR BRANCH EXPENSES PAID IN CASH
Branch Expenses A/c   Dr.
     To Cash A/c
FOR TRANSFER OF EXPENSES TO BRANCH ADJUSTMENT ACCOUNT
Branch Adjustment A/c   Dr.
     To Branch Stock A/c
FOR ADJUSTMENT IN INFLATED PRICE OF OPENING STOCK
Stock Reserve A/c   Dr.
     To Branch Adjustment A/c
FOR ADJUSTMENT IN INFLATED PRICE OF CLOSING STOCK
Branch Adjustment A/c    Dr.
      To Stock Reserve A/c
FOR TRANSFER OF PROFIT TO GENERAL PROFIT AND LOSS ACCOUNT
Branch Adjustment A/c    Dr.
      To General profit and loss account
FOR TRANSFER OF LOSS TO GENERAL PROFIT AND LOSS ACCOUNT
General Profit and Loss A/c    Dr.
      To Branch Adjustment A/c
BRANCH ACCOUNTING NOTES FOR BCOM
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