Incorporation Of Branch Trial Balance In The Head Office Books

Just because an independent branch keeps full system of accounting and prepares its own final accounts does not mean that its year-end results will not form part of the final accounts of the Head Office. In fact, as in case of dependent branches, the profit or loss made by an independent branch shall also be included in the General Profit and Loss Account which shows the profit or loss of the company as a whole. 

Similarly, its assets and liabilities shall also be shown as part of the assets and liabilities of the company. This is done by preparing the combined (consolidated) Balance Sheet of the Head Office and its branches. Thus, it becomes necessary for the Head Office to incorporate the branch balances in the Head Office books by means of suitable journal entries at the end of the accounting period.

The incorporation of branch balances involves the following two steps:

i)     incorporation of branch profit or loss, and

ii)     incorporation of branch assets and liabilities.

For incorporation of the branch profit or loss, the Head Office may either pass various entries to include all revenue items and prepare a proper Branch Trading and Profit & Loss Account or simply pass one entry for profit or loss made by the branch after working it out with the help of a Memorandum Branch Trading and Profit & Loss Account. The first method is called ‘detailed incorporation’ and the second method is called ‘abridged incorporation’ (or simply short cut method). Whatever the method for incorporating branch profit or loss, the entries for incorporating branch assets and liabilities remain the same.

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