Week EIGHT AND NINE
Topic: PREPARATION OF BRANCH ACCOUNT
Content
- Branch Adjustment Method
- Accounting Entries
- Formats and Illustration
- Where branches keep separate Accounts
Branch Adjustment Method of Branch Accounting
Unlike the memorandum or double column method, under this method, the profit loading will be taken to a separate A/C called “Branch adjustment A/C”. Under this method the following are the main A/C that will be prepared:-
- Branch stock A/C – at invoice price
- Branch stock adjustment A/C showing profit loading
- Goods sent to branch A/C – based on cost price
- Debtors A/C (where goods are sold or credit)
- Branch P & L A/C
Accounting Entries
- When goods are sent to branch Dr. Branch stock A/C at invoice price Cr. Goods sent to branch A/C (at cost)
- When there are sales – cash or credit Dr. Cash A/C with cash sales Dr. Debtors A/C with credit sales Cr branch stock A/C with cash or credit sales.
- Stock at start.
Dr. branch stock A/C – (with invoice price) Cr. Branch stock adjust A/C (profit loading)
- Stock at close
Dr. Branch stock adjust A/C (profit loading)
Cr. Branch stock A/C with invoice price - Returns to head office.
Cr. Branch stock A/C at invoice price
Dr. Goods sent to branch A/C at cost price
Dr. Branch stock adjustment A/C with profit loading - Transfer to other branch
Cr. Branch stock A/C at invoice price
Dr. Goods sent to branch A/C at cost price
Dr. branch stock adjustment A/C with profit loading - Allowances of selling price or reduction in selling price
Dr. branch stock adjustment A/C (total allowance )
Cr. Branch stock A/C (total allowance) - Goods in transit
Dr. branch stock adjustment A/C (with profit loading)
Cr. Branch stock A/C (with invoice price) - Goods lost in transit
Dr. Branch stock adjustment A/C (with profit loading)
Dr. Goods lost in transit A/C (at cost price and write it off to P & L A/C)
Cr. Branch stock A/C (at invoice price) - Goods stolen or deficiencies
Cr. Branch stock A/C (invoice price)
Dr. Branch stock adjustment A/C (profit loading)
Dr. Goods stolen A/C (with cost price) - Cash Stolen
Cr. Branch stock A/C (Total amount)
Dr. Defalcation A/C (total amount) to be written off to P & L A/C - Goods returned by customers to head office
Cr. Debtors A/C (invoice price)
Dr. goods sent to branch A/C (cost price)
Dr. Branch stock adjustment A/C (profit loading) - Balance of adjustment A/C will be transferred to branch profit and loss A/C
- The goods sent branch A/C will be closed by transferring the balance to H.O. trading A/C. Formats
Branch Stock Account (invoice price)
N N
Stock at start x goods transferred to another branch x
Goods sent to branch x cash sales x
Credit sales x
Expenses paid out of takings x
Reducting in selling price x
Goods in transit x
Returns to H.O. x
Cash stolen (pilterage) x
Normal loss x
Cash in hand x
Bal c/d stock at close x
xx xx
Goods sent to Branch A/C (cost price)
Return to H.O x Branch stock A/C x
Transfer to other branch x
Bal C/D transp. To H.O
Trading A/C x
x x
Branch stock adj. or branch mark-up Account profit loading
N N
Profit on return to H. O x Profit on opening stock x
Profit on stock at close x profit on goods sent to branch x
Profit on goods returned
By customers to H.O x
Profit on goods in transit x
Normal loss (selling price) x
Profit on goods stolen x
Profit on return to other
Branch x
Reduction in selling price x
GP to branch & P&L A/C
c/d x
xx xx
Branch P & L A/C
N N
Cost of goods stolen x Branch stock Adj A/C b/d x
Sundry expenses x
Cost of goods lost in transit x
Cost stolen x
Net profit c/d x
xx xx
Evaluation questions
1. What are the entries involved in selling goods on credit by a branch?
2. What is the purpose of preparing branch stock accounts?
Illustration
Suzuki Ltd has a head office in Lagos and a branch in Ibadan. All goods are purchased by the head office and sent to Ibadan at cost plus mark-up of 1/3 of the selling price. During the year to 31/12/05 the following transaction took place at Ibadan.
N
Goods received from Lagos 360,000
Goods returned to Lagos 3360
Bad debt 1192
Cash received from debtors 137248
Cash discount given 3616
Cash sales 201600
Credit sales 144,000
The following additional information is relevant
1/1/05 31/12/05
N N
Stock in hand at selling price 32160 42000
Debtors 13216 15160
You are required to prepare
- Branch stock A/C
- Goods sent to Branch A/C
- Branch stock adjustment A/C
- Branch debtors A/C
Solution:
Suzuki Ltd
Branch stock A/C (invoice price)
N N
a. balance b/f 32160 cash sales 201600
Goods sent to branch branch debtors
At cost (2/3 x 360,000) 240,000 -credit sales 144,000
Branch stock adj. goods return
Profit loading (1/3 x 360,000) 120,000 to H.O.
Cost – (2/3 x 3360) 2,240
Branch stock
Adjust-profit
Loading (1/3×3360) 1,120
Branch stock
(The difference) 1,200
bal (c/d stock
at close 4,200
39216 39216
b. Goods sent to branch A/C (cost price)
N N
Branch stock
Goods returned to H.O A/C (2/3×360,000) 240,000
Cost (2/3×3360) 2240
Transferred to
H.O. trading A/C
(Balancing figure) 237,760
240,000 240,000
c. Branch stock adjustment A/C (profit loading)
N N
Branch stock A/C bal b/f (1/3×32,160 10,720
Less in stock 1200 branch stock A/C 120,000
Returns to H.O (profit on G.S.B
(profit on it 1/3×3360 1120 (1/3×360,000)
Profit on closing
Stock (1/3×42000) c/d 14,000
Branch P&L A/C GP c/d 114,400
130720 130720
Bal b/d 14000
d. Branch debtors A/C
N N
Bal b/f 13216 cash received from debtors 137248
Credit sales 144,000 Discount allowed 3616
Bad debt 1192
Bal c/d 15,160
157216 157216
Bal b/d 15160
Evaluation questions
1. Explain the following pricing methods used in preparing branch accounts
(a) cost price (b) cost plus a percentage (c) selling price
2. List any five items that may feature in the Branch stock Adjustment Account.
GENERAL EVALUATION QUESTIONS
- List five source documents used in preparing the Cash Book
- State five factors to be considered in determining the depreciation charge for a fixed asset
- State five differences between capital expenditure and revenue expenditure
- State three features of each of the following (a) cash book (b) trading account (c) profit and loss account
- Differentiate between prime costs and overhead costs
Reading assignment
Essential Financial Accounting O. A. Longe, Pages 379-383
Weekend assignment
- Branch stock A/C is prepared to show:
- cost price of goods sent to branch
- Gross profit in goods sent to branch
- Invoice price of goods sent to branches
- None of the above
- In branch accounting, the entries for bad debt written off are:
- Dr. Branch stock A/C Cr. Debtors A/C
- Cr. Bank A/C Dr. debtors A/C
- Cr. Debtors A/C, Dr. branch P&L Mc to branch A/C
- If the margin of a trader is 30% than the mark-up of the trader is
(a)25% (b)33% (c)40% (d)43%
- The balancing figure in the goods sent to branch A/C is (a)transfer to branch debtors A/C (b)credit to branch stock A/C (c)transfer to branch P&L A/C (d)transfer to head office trading A/C
- A branch sold goods on credit for N5000. The accounting entries are debt branch debtors A/C N5000 and credit.
(a) goods sent to branch A/C N5000 (b)branch stock adjustment A/C N5000 (c)branch stock A/C N5000 (d)branch profit & loss A/C N5000
Theory
- What purpose does each of the following serve?
- Branch stock A/C
- Branch stock adjustment A/C
- Goods sent to branch A/C
- Show a comprehensive format of a branch stock A/C