How to Prepare Branch Account

With following question and its solution, we will teach you to prepare branch account.If you interested to whole financial accounting, visit our Financial Account Resources.

Date of Asking Question		2/18/2014 3:11
Name	Priya Manuel
Country	India
Title of Question	Prepare a branch account
Detail of Question	Mohan brothers invoiced goods to their branch at cost plus 33.33%. All the cash collected by branch is banked on the same day to the credit of head office. all expense are paid by head office except petty expenses which are paid by the Branch Manager. Prepare branch account from the following:- Stock(1.4.2012)is 15000/-,stock(31.03.2013) is 20000/-, Debtors(1.4.2012) is 24200/-, Debtors (31.3.2013) is 21500/-, goods sent to branch from the Head office is 56000/-, Cash Sales is 38400/-, Credit sales is 44000/-, Furniture purchased by branch is 10000/-, Expenses paid by head office is 7800/-, Expenses paid by branch is 2100/-, Branch cash balance on 1.4.2012 is 4400/-, Branch cash balance on 31.3.2013 is 5000/-
Category	Accounting

Solution : 

Dear Priya Manuel, I want to teach some of important facts before showing the process of branch account. Branch account will become just like profit and loss account. It will show the net profit or net loss of branch. So,  all the goods which are sent and closing in the branch will show the excess of income and expenses. But when we send goods at cost plus some profit margin to branch, its main aim is to hide the correct cost from the eyes of branch. If branch employees will know this important fact, they will start to open their own business. So, this strategy of business. But if you are responsible to prepare branch account, you know this fact. You must deduct margin from opening stock and closing stock. So, we will deduct 33.33% cost from its opening stock and closing stock which sent goods to our branch. 

Remember Points : 

1. Gross profit margin 33.33% will deduct by recording reverse entry in account.

a) Opening stock - Because company will not earn the profit from own stock. 

b) Closing Stock - Because company will not earn the profit from own stock. 

c) Goods send to branch - Because company will not earn the profit from own stock. 

2. Every cash or bank which branch will receive will be credit. Main are two sources 

one is cash sale and second is from debtor. All cash or bank payment will be debit. If it will be capital nature, it will show its closing balance in the credit side. In your cash payment of furniture buying is capital nature. So, first it will go debit side and then it will go credit side. 

3. Credit sale will not show in branch account , because it will show automatically in the credit side. 

see 

New Credit Sale = debit side (open debtors) - cash receive from debtors - closing balance of debtors.

Dr.             Branch Account      Cr.
1.      Opening Stock in branch	15000	1. Bank Account (cash sale)	38400
2.      Opening balance of Cash	4400	– Cash receive from debtors	Nil
4.      Opening Balance of Debtors	24200	2.Closing balance of Cash	5000
5.      Goods send to branch	56000	3. Closing balance of Furniture	10000
6.      Bank Account – Furniture bought	10000	4. Closing Balance of Debtors	21500
-          Expenses paid by head office	7800	5.Closing stock in branch	20000
-Expenses paid by branch	2100	6. Deduction of 33.33% from opening stock	3749.71
7.      Deduction of 33.33% from closing stock	4999.62	( 15000 X33.33/133.33)
( 20000 X33.33/133.33)		7      Deduction of 33.33% from goods send to branch ( 56000 X 33.33/133.33)	13998.94
Total of debit side	124499.6	Total of credit side	112648.7
		Profit and loss account - Loss	11850.97