COMMERCE - 2ND SEMESTER (HONS+ GEN)

FINANCIAL ACCOUNTING-II CHDC 3 & CGDC 3

UNIT -1

BRANCH ACCOUNTING
Analytical Method / Stock and Debtors Method:
Analytical method for accounting of branch is used for exercising more detailed control over
the working of a branch. Under this method several accounts are opened in the books of
head office in place of one branch account. By opening detail accounts of several
transactions greater supervision can be imposed on the financial activities of branch.
Generally, following accounts are prepared for both cash price and invoice price
transactions.
(A) Branch Stock Account. (either at cost price or invoice price)
(B) Branch Debtors Account.
(C) Branch Cash Account.
(D) Branch Expenses Account.
(E) Branch Profit / Loss Account.
(F) Abnormal loss Account.
(G) Goods sent to Branch Account. Etc.
In case of invoice price transaction in addition to the above accounts an additional account
is opened, called Branch Stock Adjustment Account, to reduce load on different invoice
prices. All adjustments in relation to load on goods sent, goods return, abnormal loss of
goods, opening and closing stocks are recorded in this account.

The balance of Branch Stock Account in case of cost price transactions represent Gross
Profit or Gross Loss and the same is to be transferred to Branch Profit / Loss Account. In
case of invoice price transaction, the balance of Branch Stock Adjustment Account shows
Gross Profit or Gross Loss and transferred to the Branch P/L Account. Under invoice price
transaction, Branch Stock Account is always balanced after making all relevant postings. But
if in any case any balance arrives then such balance is called either Apparent Profit (Balance
in the debit side) or Normal Loss (Balance in the credit side) and the same is transferred to
the Branch Stock Adjustment Account.
The balance of Branch P/L Account is called Net Profit or Net Loss and transferred to the
General P/L Account. The balances of Branch Expenses Account and Goods sent to Branch
Account are transferred to the Branch P/L Account and Purchase Account respectively.

CLASS NOTES 2ND SEMESTER INDRAJIT DAS

**Under cost price transactions no adjustment is required for Normal loss.
Important journal entries of this method are as follows:

Common Journals for both cost and invoice price transactions:

Transactions Journals
For goods sent to branch. Branch Stock A/c…………….Dr.
To Goods sent to branch A/c

For cash sent to branch by H.O. Branch Cash A/c…………….Dr.

To Bank A/c

For cash sales at branch. Bank A/c…………………....... Dr.

(Money remitted directly to H.O)
Branch Cash A/c………..........Dr.
(Money remitted through branch)
To Branch Stock A/c

For credit sale at branch. Branch Debtors A/c…………….Dr.

To Branch Stock A/c

When goods returned by the branch to the Goods sent to branch A/c………….Dr.
H.O. To Branch Stock A/c

For goods returned by the customer to the Branch Stock A/c……………..Dr

branch. To Branch Debtors A/c

For collection from debtors. Bank A/c………………..…….Dr.

Branch Cash A/c……….……Dr.
To Branch Debtors A/c

For discount, allowance & bad debt. Branch P/L A/c…………….Dr.

To Branch Debtors A/c

For branch expenses. Branch Expenses A/c…………Dr.

To Bank A/c
To Branch Cash A/c
For cash remittance to H.O. Bank A/c……..……….Dr.
To Branch Cash A/c

For purchase of assets at branch. Branch Asset A/c………….Dr.

To Bank A/c
To Branch Cash A/c
For depreciation on branch assets. Branch P/L A/c………….Dr.
To Branch Asset A/c

CLASS NOTES 2ND SEMESTER INDRAJIT DAS

For Abnormal loss. Abnormal Loss A/c………….Dr.
To Branch Stock A/c

When cash received from insurance Bank / Branch Cash A/c………….Dr.

company for loss. To Abnormal Loss A/c

Actual loss due to Abnormal Loss. Branch P/L A/c…………….Dr.

To Abnormal Loss A/c

Additional journals for invoice price transactions:

Transactions Journals
To reduce the load on the price of Opening Stock Reserve A/c…………………………….Dr.
Stock. To Branch Stock Adjustment A/c

To reduced load on goods sent to branch. Goods Sent to branch A/c ……………….Dr.
To Branch Stock Adjustment A/c

To reduced load on goods returned to H.O. Branch Stock Adjustment A/c ……..….Dr.
To Goods sent to branch A/c

To reduced load on Abnormal loss. Branch Stock Adjustment A/c …..…….Dr.

To Abnormal loss A/c

To reduce the load on the price of Closing Branch Stock Adjustment A/c …..…….Dr.
Stock. To Stock Reserve A/c

For Normal loss. Branch Stock Adjustment A/c ……..….Dr.

To Branch Stock A/c

For Apparent Profit. Branch Stock A/c …………………………….Dr.

To Branch Stock Adjustment A/c

For opening and closing balances of different accounts no separate entry is

needed to be made. The balances are to be recorded as “ To Balance B/D or By Balance B/D”
for opening and “ By balance C/D or To Balance C/D” for closing values in the corresponding
accounts.

CLASS NOTES 2ND SEMESTER INDRAJIT DAS

Formats of accounts under Analytical method:

Branch Stock Account

Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.
To Balance B/D *** By Branch Cash A/c ***
(Cash sales)
To Goods sent to *** By Branch Debtors A/c ***
branch A/c (credit sales)
(goods sent to branch) By Goods sent to ***
To Branch Debtors A/c *** branch A/c
(sales return) (goods return to H.O.)
To Branch P/L A/c *** By Abnormal Loss A/c ***
(gross profit transfer) By Branch stock
To Branch stock Adjustment A/c ***
Adjustment A/c (Normal loss)
(Apparent profit) By Balance C/D ***

**** ****

 In case of transaction at cost: Like gross profit in the debit side of branch stock account,
gross loss may arise in the credit side. In that case branch stock account will be credited by
Branch P/L account.

Branch Debtors Account

Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.
To Balance B/D *** By Bank / Branch Cash ***
A/c
To Branch Stock A/c *** (collection from
(Credit sales) debtors)
By Branch P/L A/c ***
(bad debt, discount,
allowance etc.)
By Branch Stock A/c ***
(Sales return)
By Balance C/D ***
****
****

CLASS NOTES 2ND SEMESTER INDRAJIT DAS

 Branch Cash Account
Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.
To Balance B/D *** By Bank A/c ***
(Cash remitted to H.O)
To Branch Stock A/c *** By Branch Exp. A/c
(Cash sales) (Expenses paid) ***
To Branch Debtors A/c ***
(Collection from debt.)
To Bank A/c ***
(Cash sent to branch) By Balance C/D ***
****
****

Branch Expenses A/c

Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.

To Branch Cash A/c By Branch P/L A/c ***

( salary, wages, rent, *** (Transfer)
rates, office exp. Etc.)
**** ****

Branch P/L Account

Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.
To Branch Exp. A/c *** By Bank Stock A/c ***
(Expenses transfer) (gross profit trnsf.)
To Branch Debtors A/c ***
(bad debt, discount , By Branch Stock ***
allowance etc.) Adjustment A/c
To Branch Asset A/c *** (gross profit trnsf.)
(depreciation on
branch asset)
To Abnormal Loss A/c *** By General P/L A/c ***
(Actual loss for (Net loss transfer)
abnormal loss)
To General P/L A/c
(Net profit transfer) ***
**** ****

CLASS NOTES 2ND SEMESTER INDRAJIT DAS

 Branch Stock Adjustment Account
Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.
To Goods sent to *** By Stock Reserve A/c ***
branch A/c (Load on Op. Stock)
(load on goods return) By Goods sent to
To Branch Stock A/c *** Branch A/c ***
(Normal loss) (load on goods sent)
To Abnormal Loss A/c *** By Branch Stock A/c ***
(load on abnormal (Apparent profit)
loss)
To Branch P/L A/c ***
(gross profit Transfer)
To Stock Reserve A/c ***
(load on Cl. Stock)
**** ****

 In case of transaction at invoice price: Like gross profit in the debit side of branch stock
adjustment account, gross loss may arise in the credit side. In that case branch stock
adjustment account will be credited by Branch P/L account.

Goods sent to branch A/c

Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.

To Branch Stock A/c By Branch Stock A/c ***

(goods return to H O) *** (Goods Sent)
To Branch Stock *** By Branch Stock ***
Adjustment A/c Adjustment A/c
(load on goods sent) (load on goods return)

To Purchase A/c ***

(Transfer)
**** ****

CLASS NOTES 2ND SEMESTER INDRAJIT DAS

 Abnormal Loss A/c
Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.

To Branch Stock A/c By Bank A/c ***

(Gross loss) *** (Claim received)
By Branch Stock ***
Adjustment A/c
(load on gross loss)
By branch P/L A/c ***
(actual loss)
**** (balancing figure) ****

Examples:
Problem 1:
The Bombay Trading Company sent goods to its Delhi branch at cost. Branch cash account is
maintained by the branch to perform all cash transactions. Following is a transaction
summery entered into at the branch during the year ended 31.12.2019.

Stock on January 1, 2019 Rs.7000 Goods returned by customers Rs. 500

Debtors on January 1,2019 Rs.12600 Salaries & Wages Rs. 6200
Cash on January 1, 2019 Rs. 200 Rent & Rates Rs. 1200
Goods sent to branch Rs. 26000 Sundry expenses Rs. 800
Goods returned to H. O. Rs. 1000 Collection from debtors Rs. 28500
Cash sales Rs. 17500 Stock on Dec 31, 2019 Rs. 6500
Credit Sales Rs. 28400 Debtors on Dec 31, 2019 Rs. 9800
Allowances to customer Rs. 200 Cash on Dec 31, 2019 Rs. 100
Discount to customers Rs. 1400
Bad debts Rs. 600

Prepare necessary accounts in the books of H.O. under Analytical Method.

CLASS NOTES 2ND SEMESTER INDRAJIT DAS

Solution:
In the books of Bombay Trading Company (H.O.)
Branch Stock Account
Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.
1.1 To Balance B/D 7000 31.12 By Branch Cash A/c 17500
(Cash sales)
31.12
To Goods sent to 26000 31.12
By Branch Debtors A/c 28400
branch A/c (credit sales)
(goods sent to branch) 31.12 By Goods sent to 1000
31.12 To Branch Debtors A/c 500 branch A/c
(sales return) (goods return to H.O.)
31.12
To Branch P/L A/c 19900
(gross profit transfer) 31.12 By Balance C/D 6500
(balancing figure)
53400 53400

Branch Debtors Account

Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.
1.1 To Balance B/D 12600 31.12 By Branch Cash A/c 28500
(collection from
31.12
To Branch Stock A/c 28400 debtors)
(Credit sales) 31.12 By Branch P/L A/c
- Allowances 200
- Discounts 1400
- Bad debts 600
31.12
By Branch Stock A/c 500
(Sales return)
31.12 By Balance C/D 9800
41000 41000

CLASS NOTES 2ND SEMESTER INDRAJIT DAS

 Branch Cash Account
Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.
1.1 To Balance B/D 200 31.12 By Bank A/c 37900
(Cash remitted to H.O)
31.12
To Branch Stock A/c 17500 (Balancing figure)
(Cash sales) 31.12 By Branch Exp. A/c
31.12 To Branch Debtors A/c 28500 - Salaries Wages 6200
(Collection from debt.) - Rent & Rates 1200
- Sundry Exp. 800

31.12 By Balance C/D 100

46200 46200

Branch Expenses A/c

Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.
31.12 To Branch Cash A/c
- Salaries Wages 6200 By Branch P/L A/c 8200
31.12
- Rent & Rates 1200 (Transfer)
- Sundry Exp. 800

8200 8200

Branch P/L Account

Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.
31.12 To Branch Exp. A/c 8200 31.12 By Bank Stock A/c 19900
(Expenses transfer) (gross profit transfer.)
31.12
To Branch Debtors A/c
- Allowances 200
- Discounts 1400
- Bad debts 600

31.12
To General P/L A/c 9500
(Net profit transfer)

19900 19900

CLASS NOTES 2ND SEMESTER INDRAJIT DAS

Problem 2:
Romit Ltd. Has a branch at Karnojora, where it sends goods at cost plus 50%. From the
following particulars regarding the branch, Prepare necessary accounts in the books of head
office.
Stock at cost (1.04.2019) Rs.20000 Bad debt Rs.200
Debtors (1.04.2019) Rs. 18000 Sales Return to branch Rs. 3000
Cash (1.04.2019) Rs. 5000 Branch expenses paid by H.O. Rs. 10000
Goods sent to branch at I.P. Rs. 99000 Cash remitted to H.O. Rs. 80000
Cash Sales Rs. 27000 Csah (31.03.2020) Rs. 6000
Credit Sales Rs.79000 Stock at I.P. (31.03.2020) Rs. 27000
Normal Loss at cost Rs. 2000 Debtors (31.03.2020) Rs. 30000
** I.P.= Invoice Price.

Solution:

As the problem is a problem of invoice price, we need to make entries at invoice price.
Thus all transactions given at cost price are to be translated in to invoice price. After
making entries at invoice price we have to reduce load on invoice prices at Branch Stock
Adjustment Account.

Invoice price = Cost * 150% Or Invoice price = Cost +(Cost * 50%)

 I.P. of Opening Stock= Rs.20000*150%= Rs.30000
 I.P. of Normal Loss= Rs.2000*150%= Rs.3000

In the books of Romit Ltd.(H.O.)

Branch Stock Account
Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.
1.04 To Balance B/D 30000 31.03 By Branch Cash A/c 27000
(Cash sales)
31.03
To Goods sent to 99000 31.03
By Branch Debtors A/c 79000
branch A/c (credit sales)
(goods sent to branch)
31.03 To Branch Debtors A/c 3000
(sales return)
31.03
To Branch Stock 31.03
By Branch Stock
Adjustment A/c 4000 Adjustment A/c 3000
(Apparent Profit) * (Normal loss)
(balancing figure) By Balance C/D 27000
136000 136000

CLASS NOTES 2ND SEMESTER INDRAJIT DAS

 * As Normal loss is given in the problem and branch stock account reflects a debit
balance, So it is treated as Apparent profit.

Branch Stock Adjustment Account

Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.
31.03 By Stock Reserve A/c 10000
To Branch Stock A/c 3000 (Load on Op. Stock)
31.03
(Normal loss) (30000*50/150)
31.03 By Goods sent to ***
31.03 To Branch P/L A/c 35000 Branch A/c
(gross profit Transfer) (load on goods sent) 33000
(Balancing Figure) (99000*50/150)
31.03
By Branch Stock A/c 4000
(Apparent profit)
31.03 To Stock Reserve A/c 9000
(load on Cl. Stock)
(27000*50/150) 47000 47000

Branch Debtors Account

Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.
1.04 To Balance B/D 18000 31.03 By Branch Cash A/c
(collection from 63800
31.03
To Branch Stock A/c 79000 debtors)
(Credit sales) 31.03 (balancing figure)
By Branch P/L A/c 200
- Bad debts
By Branch Stock A/c 3000
31.03
(Sales return)

31.03 By Balance C/D 30000

97000 97000

CLASS NOTES 2ND SEMESTER INDRAJIT DAS

 Branch Cash Account **
Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.
1.04 To Balance B/D 5000 31.03 By Bank A/c 80000
(Cash remitted to H.O)
31.03
To Branch Stock A/c 27000
(Cash sales) 31.03 By Branch Exp. A/c 9800
31.03 To Branch Debtors A/c 63800 (Expenses paid by
(Collection from debt.) Branch)
(Balancing figure)

31.03 By Balance C/D 6000

95800 95800

Branch Expenses A/c

Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.
31.03 To Branch Cash A/c 9800
(Expenses paid by By Branch P/L A/c 19800
31.03
Branch) (Transfer)
To Bank A/C 10000
(Expenses paid by
H.O) 19800 19800

Branch P/L Account

Dr. Cr.
Date Particulars J. Rs. Date Particulars J. Rs.
F. F.
31.12 To Branch Exp. A/c 19800 31.12 By Bank Stock A/c 35000
(Expenses transfer) (gross profit transfer.)
31.12
To Branch Debtors A/c 200
- Bad debts

31.12
To General P/L A/c 15000
(Net profit transfer)

35000 35000

** As cash sent to H.O, Opening and Closing Balances of cash are given in the problem so,
Branch Cash Account is prepared to identify expenses paid by the branch.

CLASS NOTES 2ND SEMESTER INDRAJIT DAS