Need For Branch Accounting

As stated earlier, each branch is treated as a separate profit centre. Hence, it should record various transactions in such a manner that its profit or loss can be worked out and incorporated in the firm’s overall results at the end of the accounting year. Moreover, the branches conduct all activities under the direction and control of the head office which may need a variety of information from time to time about the functioning of each branch. This becomes possible only if the branches keep proper books of account.  Thus, the main reasons of keeping branch accounts can be summarised as follows :

i)     to find out the profit or loss of each branch for the accounting period;

ii)     to ascertain the financial position of each branch at the end of the accounting year;

iii)    to incorporate the net effect of branch transactions and their assets and liabilities in a firm’s final accounts;

iv)    to estimate requirements of cash and stock for each branch;

v)    to evaluate the progress and performance of each branch;

vi)    to calculate the commission for payment to the managers, if based on profit of branch;

vii)   to assess the prospects for expansion of business in each branch; and

viii) to meet audit  requirements.

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