Debtors System

As stated earlier, under debtors system, the head office simply opens a Branch  Account for each branch in which it records all transactions relating to the branch. The Branch Account also helps in ascertaining the profit or loss of the branch.

Goods may be invoiced to a branch at cost or at selling price (also called invoice price).

Accordingly, there are two methods of preparing the Branch Account: (1) Cost Price Method, and (ii) Invoice Price Method.

Let us now study the preparation of Branch Account under both of these methods.


Cost Price Method

When goods are invoiced at cost, the following journal entries are passed in the books of the head office to record various transactions relating to the branch.


1) For Goods sent to Branch

Branch A/c                                        Dr.

To Goods Sent to Branch A/c

(Being goods sent to branch)


2) For return of goods to head office

Goods Sent to Branch A/c            Dr

To Branch A/c

(Being goods returned by the branch)


3) For amount sent to branch for expenses

Branch A/c                                        Dr.

To Bank A/c

(Being cheque sent to branch for expenses)


4) For amount received from branch

Bank A/c                                           Dr.

To Branch A/c

(Being cash or cheque received from branch)


5) For closing goods sent to branch account

Goods Sent to Branch A/c            Dr.

To Purchases/Trading A/c

(Being balance transferred to Trading Account)


6) For closing balances of assets at the branch

Branch Assets A/c (Individually)    Dr.

To Branch A/c

(Being closing balances of assets brought into account)


7) For closing balances of liabilities at the branch

Branch A/c                                        Dr.

To Branch Liabilities A/c (Individually)

(Being closing balances of liabilities brought into account)


8)      For transferring profit or loss to the General Profit and Loss Account

i)      If profit

Branch A/c                               Dr.

To General Profit and Loss A/c

(Being branch profit transferred to General P & L A/c)


ii)     If loss

General Profit and Loss A/c Dr.

To Branch A/c

(Being branch loss transferred to General P & L A/c)


The closing balances of branch assets and liabilities are shown in the Balance Sheet of the head office. At the beginning of the next year, the entry numbers 6 and 7 are reversed so as to show opening balances in the Branch Account.


Invoice Price Method

As in the case of consignment, the goods may he invoiced to branches at a price higher than the cost (termed as invoice price). This is done primarily to have an effective control over stock with branches and keep the margin of profit secret from the branch manager. In such a situation, all entries relating to goods are made in the Branch Account at invoice price and necessary adjustments for loading (difference between I.P. and C.P.) are recorded at the end by passing the following additional journal entries:


1) For adjustment of loading in opening stock at branch

Stock Reserve A/c                                              Dr.

To Branch A/c


2) For adjustment of loading in goods sent to branch less returns

Branch A/c                                                           Dr.

To Goods Sent to Branch A/c


3) For adjustment of loading in closing stock at branch

Branch A/c                                                           Dr.

To Stock Reserve A/c

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