From accounting point of view, the branches can be divided into the following categories:
1) Branches not keeping full system of accounting;
2) Branches keeping full system of accounting;
3) Foreign branches.
Let us have an idea about their main characteristics.
Branches not Keeping Full System of Accounting: The branches not keeping full system of accounting are also called dependent branches. The main features of such branches are:
i) They sell only those goods which are received from the head office and are not usually allowed to make purchases in the open market except with the permission of the head office.
ii) Goods are supplied by the head office to such branches either at cost price or at invoice price.
iii) All major expenses of the branch are paid by the head office. The branch manager is allowed to incur only petty expenses like cartage, postage, etc. out of the petty cash provided to him for which he is required to maintain a simple petty cash book.
iv) The amount received from cash sales and debtors is either remitted to the head office daily or deposited in the account of head office in some local bank.
v) The branch manager is normally expected to sell the goods for cash, but he may be authorised to sell goods on credit in certain cases.
vi) Such branches do not keep complete books of account. They simply maintain record of sales and prepare debtors accounts, if necessary. They are also required to maintain a stock register and furnish weekly or monthly statements giving complete information about stock position and movement of goods to the head office. This enables the head office to keep proper control over stock at branches.
Branches Keeping Full System of Accounting: Branches keeping full system of accounting are called independent branches. They are allowed to purchase goods from the market and also supply to the head office, if necessary. They can incur expenses from the cash realised and operate the bank account in their own names. Thus, they operate as independent units for all practical purposes. Their only link with the head office is that they are owned by the head office and whatever profit they earn or loss they incur ultimately belongs to the head office. Such branches keep a complete set of books on the double entry system and prepare their own Trial Balance, Trading and Profit & Loss Account and Balance Sheet. Such branches open Head Office Account in their books and record all transactions between the branch and the head office in this account.
Foreign Branches: When a branch is located in a foreign country, it is called a foreign branch. Such branches will keep their books of account in foreign currency. The Distinctive feature of foreign branches is that financial information received from them will be in foreign currency which has to be converted into the currency of the country of the head office before it is incorporated in the head office books. For example, if an Indian company has a branch in Nairobi, the branch Trial Balance will be in Kenyan shillings. The Trial Balance must be converted into rupees before it can be incorporated in head office books. For all practical purposes, however, foreign branches are treated as independent branches.
