Accounting System Of An Independent Branch

You know an independent branch enjoys certain amount of operational autonomy. Besides receiving goods from the Head Office, it may also purchase goods from the outside parties. It maintains its own bank account and remits money from time to time to Head Office as per the instructions of the Head Office. It is treated as a separate accounting entity. The main features of the accounting system of independent branches are as follows:

1)    The branch maintains complete set of books on double entry system.

2)    The branch opens a Head Office Account in its books. It is a personal account wherein, all transactions between the branch and the Head Office are recorded at the branch level. This account is debited with cash sent to the Head Office and the goods returned or supplied to the Head Office, and is credited by goods received from the Head Office and the Head Office expenses charged to the branch for centralised services.

3)    The Head Office also maintains a Branch Account in its books for all transactions, it makes with a particular branch. It is also a personal account which shows the same entries as the Head Office Account in branch books, but on the reverse sides.

4)    At the end of the accounting period, the branch prepares its trial balance and the final accounts, and send their copies to the Head Office.

5)    As soon as the Head Office receives the trial balance from a branch, it compares the balance in Head Office Account as shown in the branch Trial Balance with the balance in the Branch Account as it appears in the Head Office books. The difference, if any, is investigated and, after ascertaining the causes thereof, the necessary adjustment entries are passed.

6)    After reconciling the Head Office Account balance with the Branch Account balance, the Head Office passes the necessary entries for incorporating various branch balances in its books.

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