Branch Account


classification of branches


Dependent branches

These branches are required to submit periodic returns – daily, weekly or monthly according to circumstances – in the following matters:


Daily receipts,

Ø Expenses incurred

Ø Commissions paid or due

Ø Particulars of accounts of accounts receivable

Ø Discounts allowed

Ø Goods returned by clients

Ø Credit sales

Ø Doubtful debts

Ø Any other information which the main enterprise may request


The accounting system for dependent branches will be dictated by the value at which goods are transferred to the branch. They can either be transferred at cost price or at selling price. In this course we will be concentrating on branches where goods are transferred at selling price;


Goods delivered to the branch at selling price

To keep track of these transactions the following ledger accounts will be used:

Ø Branch inventory

Ø Goods to branch

Ø Branch adjustment


Branch inventory account

This account reflects the movement of inventory to and from the branch. It is classified as a current asset and therefore all goods sent to the branch will be debited to this account (increasing the asset). Similarly all goods returned, sold, stolen or damaged will be entered on the credit side (decreasing the asset). It is always stated at selling price and thus becomes an inventory control account. Should the balance of the account fail to correspond with the actual inventory count at the end of a period, the difference will be the result of some mistake or irregularity.


Goods to branch account

This account reflects the cost price of the goods sent to the branch as well as the cost price of the goods returned by the branch. It is offset against purchases in the trading account in order to calculate the gross profit of the main enterprise.


Branch adjustment account

This account reflects the anticipated profit that the sale of the goods at the branch will produce. It becomes the trading account of the branch in which the gross profit is calculated. It will reflect the anticipated profit on goods sent to the branch (credited to the account) and the reduction of this profit (debits to the account) as a result of goods returned, stolen or sold at a discount.

It is important to calculate the unrealised profit caught up in the opening and closing inventory as opening and closing balances. At the end of the trading period the gross profit will be the difference between the two sides of the account.



There are two types of discount which will be encountered in this section, namely:

Ø Cash discounts, and

Ø Discount allowed to accounts receivable for timeous payment of their accounts


It is important to correctly identify the type of discount as only cash discounts will affect the branch inventory and branch adjustment accounts.


Profit mark up

The profit mark up can be based on either:

Ø cost price, or

Ø selling price.


Mark up on cost price

To calculate the profit when mark up is 20% on cost price and cost price is R200, the following formula must be used:

  % R
Cost Price 100 200
Mark Up 20 ?
Selling Price 120  

Mark up = R200 x 20


= R 40


To calculate the profit when the mark up is 20% on selling price and the cost price is R200 the formula is adjusted as follows:


  % R
Selling Price 100  
Mark Up 20  
Cost Price 180 200

Mark up = R200 x 20


= R50



The base 100% depends on whether the mark up is based on cost price or selling price. It is important to remember that if a profit is made the cost price will always be less than the selling price.

Independent branches

An independent branch operates as a separate entity and keeps its own set of books. The head office only keeps a record of transactions between it (the head office) and the branch. All other transactions which the branch enters into are recorded in the books of the branch only.


In the books of the head office, the transactions between it and the branch will be recorded in an account called the Branch account. Whereas in the books of the branch all transactions with the head office will be recorded in an account called the Head office. These transactions will include the net profit which the branch makes as the head office owns the branch i.e. the branch owes the profit to the head office.


At the end of a financial period there may be goods in transit between the head office and the branch and vice versa, as well as cash in transit to the head office. These transactions must be brought into account in order that the balance of the Branch in the books of the head office reflects the same balance as that of the Head office in the books of the branch.


Introduction: A Foreign branch usually maintains a complete set of books under double entry  principles. So, the accounting principles of a Foreign Branch will be the same as those applying to an Inland Branch. Before a Trial Balance of the Foreign Branch is incorporated in the H.O. books, it has to be converted into home currency.

Rules for conversion: In case of fluctuating rates of exchange, the following rules for conversion are applied:


NO: Nature Of Account Exchange Rate Applicable
1 Fixed Assets


Rates ruling at the time they were acquired.


2 Fixed Liabilities


Rates ruling as on the date of the Trial Balance.


3 Current Assets & Liabilities


Rates ruling as on the date of the Trial Balance.


4 Remittances sent by the branch


At the actual rates at which they were made.


5 Goods received from H.O. as well as goods returned to H.O.



At the rates ruling on the date of dispatch or the

date of receipt.


6 The Nominal A/c’s (except next two)


Average rate ruling during the accounting period.
7 Depreciation on Fixed Assets


Rate of conversion applicable in case of the

particular asset concerned [as indicated in (a)



8 Opening and Closing stocks


Rates ruling of on the opening and closing dates



9 Balance in H.O. A/c


Value at which the Branch A/c appears in H.O.

books on the date.



Difference in Exchange:

As a result of conversion of branch trial balance in home currency, a difference in the trial balance is will often arise. If a loss (Dr.) results, it should be debited to Profit & Loss A/c, if a profit (Cr.) results, the prudent course is to credit it to an exchange Reserve A/c so as to provide for future losses on exchange.




A password will be e-mailed to you.

Feedback Form

[contact-form-7 id="98" title="Feedback Form"]